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www.irrv.net
March 2010
ISSN: 1361-1305
VALUERInside: Rating in Ireland | RICS Rating Diploma Holders | Valuation in Europe | Legal Update | Member News
Visualising LandvaluescapeTony Vickers expounds his theories for the benefit of Valuer readers
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Contents
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. . . a link between mapping land values and taxation
was established in my mind when I started
serious academic research
Editorial 04
VOA News 04
From the Trenches 05
RICS Rating Diploma Holders 07
Business Rates 11
Valuation in Europe 13
VOA Focus 16
Visualising Landvaluescape 17
Compulsory Purchase 20
Member News 24
Legal Update 24
Rating in Ireland 25
VTS Update 28
President Fisher s̓ Findings 29
Flotsam 30
IRRV VALUER
Managing Editor John Roberts
Designer Jamie Sowler
Publisher IRRV Publications
IRRV
Chief Executive David Magor, OBE
IRRV 41 Doughty Street
London WC1N 2LF
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EditorialJohn Roberts
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IRRV Valuer is produced by IRRV Publications
on behalf of the IRRV. Unless otherwise
indicated, copyright in this publication
belongs to the IRRV.
March 2010 ISSN 1361-1305
© IRRV 2010. 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 Council: IRRV President Geoff Fisher FRICS (Dip
Rating) IRRV (Hons) REV; Senior Vice-President Kerry
Macdermott IRRV (Hons); Junior Vice-President Roger
Messenger BSc (Est Man) FRICS IRRV (Hons) MCIArb REV;
Phil Adlard Tech IRRV MInstLM MCMI; Alan Bronte FRICS
IRRV (Hons); David Chapman IRRV (Hons); Tracy Crowe
CPFA IRRV (Hons); Barbara Culverhouse IRRV (Hons)
CPFA; Carol Cutler IRRV (Hons); Tom Dixon RD BSc (Est
Man) FRICS IRRV (Hons); Pat Doherty CPFA IRRV (Hons);
Ian Ferguson IRRV (Hons); Richard Guy FRICS (Dip Rating)
IRRV (Hons) MCIArb; Richard Harbord MPhil CPFA FCCA
IRRV (Hons) FIDP FBIM FRSA; Mary Hardman IRRV (Hons)
FRICS MCMI; Gordon Heath BSc IRRV (Hons); Julie
Holden IRRV (Hons) MCMI CMg; Caroline Hopkins IRRV
(Hons); Brian Jeffrey IRRV (Hons); Graham Ryall FRICS
IRRV (Hons); Kevin Stewart IRRV (Hons) MAAT MCMI;
Angela Storey Tech IRRV MCMI; Bob Trahern IRRV (Hons);
Julie Trahern IRRV (Hons); Allan Traynor FCCA IRRV (Hons)
VALUER | March 2010 | www.irrv.net
David Magor
4 | Editorial/VOA news
Promoting
the European Valuation Standards
The Institute is leading a project to invest
resources in the preparation of detailed
guidance notes and information papers to
support European Valuation Standards and
to encourage best practice in valuation.
Within the sector, the publication of the
European Valuation Standards, the “Blue
Book”, has made a huge contribution to
European standards in valuation.
The specific objectives of the project are
to improve professional standards within
the sector, and to improve the general skill
levels of all people working in the valuation
profession across Europe. In the longer term,
it is envisaged that the project will result in
increased mobility of valuer professionals, so
that, subject to meeting local requirements,
people working in one Member State will be
able to offer advice and services in relation
to, and even in, another Member State
without hindrance.
The partnership as a whole is a
combination of:
• IRRV, a professional members’
association with educational
excellence;
• SNPI, a French trade association
which is a leader in its field;
• TEGoVA, the umbrella organisation
for European valuers’ associations;
• Polish Federation of Valuers
Association (PFVA);
• ANEVAR, the Romanian Valuers’
Association, and
• Registru Centras, The Lithuanian State
Register of Property.
As the project develops, more detail will
be published in this magazine and directly
to members of the partner organisations,
with the sole aim of enhancing the valuation
profession in Europe. █
David Magor OBE IRRV (Hons) is Institute Chief Executive
VOANEWS
New Year honour
Stephen Wright, the VOA’s Head of Business
Improvement and Support, has been awarded an OBE in the
2010 New Year Honours list.
Stephen joined the Valuation Office in 1968 as a clerical
assistant in Hereford. He learned the business from ‘the
shop floor’, soon becoming the Staff Officer in St Helens
before moving to Liverpool as the area’s first Regional Staff
Officer, responsible for operational issues across North West
England. He moved across the Pennines in 1985 to become
Regional Senior Executive Officer responsible for ensuring
the delivery of targets in the Yorkshire Region. Since 1990,
he has been based in the Chief Executive’s Office in London.
London Rent Maps launchedThe Mayor of London has launched the ‘London
Rent Maps’ website that uses information supplied by
the VOA (http://www.london.gov.uk/rents/).
The site shows median rents for privately rented
homes, and is designed to allow people living and working
in London to compare average rent levels. It is based
on information of passing rents collected from agents,
landlords and tenants by VOA Rent Officers for their
statutory roles in Housing Benefit and Fair Rents.
Tim Eden, Director of Council Tax and Housing
Allowances said, “I hope this initiative will lead to a better
understanding of the Private Rented Sector in London and
an even wider interest in contributing information to the
VOA’s Rent Officers. London has a diverse, complex and ever
changing market. Each and every example of a letting helps
to build a representative picture.”
Council tax scam
The VOA has been raising awareness of a council tax
scam targeting homeowners, through the local press.
Many households across the country have received
calls from crooks claiming to be VOA or council officials and
telling their victims that they are eligible for thousands of
pounds in council tax rebate. They are then asked for their
credit card or bank account details so the money can be
refunded. Others are asked for a one-off administration fee
to process the refund.
The VOA never asks for bank account information, and
is advising concerned customers to inform their local police
and their bank if they have given the scammers any details.
VOA News
is brought to
you by the
Agency’s
Communications
Team
www.irrv.net | March 2010 | VALUER
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From the trenches | 5
The 2010 rating revaluation is likely
to prove the most controversial since
quinquennial re-assessment was re-
introduced in 1990. Although all four
revaluations since that date, and more
particularly their antecedent valuation
dates (AVD), have managed to catch
the peaks and troughs of the economic
cycle and the property market, the 2010
revaluation, with its antecedent valuation
date on the cusp of the economic collapse,
will inevitably brook major dissention.
The time line around April 2008
could not be more critical, with the
nationalisation of Northern Rock and
the first indications of the crumbling of
the finance industry having appeared in
the previous September, but the major
meltdown around Lehman Brothers and
the British clearing banks, Woolworths, MFI
and demolition of the bank rate was still
some months away. Inevitably, this means,
particularly in the peak aspects of the
2010 List for the retail industry and Central
London, that rental values when the List
comes into force may be significantly lower
than they were at the antecedent 1st April
2008. Of course, under s.19 of the General
Rate Act 1967, the assessment was the
lesser of the current rental value or the
tone of the list – those were the days!
Although the overall revaluation
outturn did not bring any major surprises,
it has certainly underlined some of the
dichotomies in the system. In terms of
re-distribution of value, the increases
in rents in supermarkets and Central
London, notably offices, have been
properly reflected, but the polarity
between the increases in these sectors
and the reductions elsewhere are perhaps
greater than have occurred in previous
revaluations. There is slight surprise
that the other geographical location for
increase is the South West region, but
this may only confirm the suspicion held
by some rating surveyors that the 2005
revaluation in that region was ‘under
done’. The polarisation of values also
means that the re-introduced transitional
scheme will have significant and longer
lasting effects. Quite how the government
intend to ‘sell’ the concept of London
ratepayers being subsidised by the rest
of the country through the withholding
of rates reductions, has yet to be seen.
There may be some grudging sympathy
because the 2p business rate supplement
to fund Crossrail only applies to the
Greater London area, and is not subject
to transitional relief. As a result, many
rates bills in the Greater London area will
increase in 2010 by far more than the
maximum 12.5% limit in the transitional
scheme – in the case of Central
London, premises in many cases by more
than double that percentage. The full
implications of this situation are unlikely to
hit ratepayers until they receive their new
rates bills.
Other likely conflicts in the 2010
Rating List revolve around the different
methods of valuation. One of these is the
contractors method, which has resulted
across the country in significant increases
of around 40% in rateable values, and
sometimes more, arising from the increase
in construction costs between 2003 and
2008. This raises the whole argument
of cost versus value in calculating
assessments, because outside London
and the South West other assessments
are likely to have fallen, and the Valuation
Office Agency (VOA) do not appear to have
adjusted the amortisation calculations to
reflect the reality of the property market at
the antecedent valuation date. There is a
further argument that the stage five ‘stand
back and look’ part of the calculation can
be applied to allow for a looking forward
at the antecedent valuation date at
anticipated future economic conditions,
being in the mind of the hypothetical
landlord and tenant on the day on which
the bargain is struck at 1st April 2008.
In that instance, it is readily arguable
that there would be some anticipation
of the future economic downturn,
and a consequential reduction of the
hypothetical rental bid.
Anticipation of economic events may
also be an issue in terms of the bulk class
properties valued on the rentals method.
Both contractors test and receipts and
expenditure valuations incorporate the
ability to look forward, but rental values
From the trenchesTom Dixon puts his own slant on preparations for the 2010 Revaluation
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www.irrv.net | March 2010 | VALUER
6 | From the trenches
adopted by the VOA are those on or
about 1st April 2008 (at least in an ideal
world). However, as these are rents for new
lettings as opposed to rent reviews, it is
likely that terms would have been agreed
several months prior to the lease being
signed and the rent coming into effect, so
it is arguable that a downward adjustment
should be applied to take account of the
rent which the landlord and tenant might
negotiate on the actual AVD. Whilst it is
already established that rents after the
AVD can be used as evidence to establish
a trend, the ‘catch 22’ situation is that due
to the economic circumstances there was
little or no rental market activity after the
April date.
In practical terms, this would be a
difficult case to argue, and it may also be
difficult to justify in terms of cost, because
given the greater impact of transition
for the 2010 revaluation, adjustments of
assessments when the List comes into
effect on 1st April 2010 will have restricted
financial effect.
Another contentious issue which is
now coming to a head following the recent
Lands Tribunal decision, in Sport England v Allan, where the President decided that
grant should not be taken into account in
calculating assessments by the contractors
method, is the taxing of many ‘not for
profit organisations’, whose assessments
are often calculated on this basis, and are
already facing disproportionate increases
in liability. Whatever the technical merits of
the Lands Tribunal decision, and they are
undoubtedly cogent, it must remain wholly
illogical for public money, such as lottery
funding, which is paid out to provide
facilities which a market economy would
not otherwise provide, to then be taxed at
a significant rate. Undoubtedly, the
completion of the Olympic developments
and the potential impact of rates liability
on the ODA funding will call this whole
issue further into question.
Last, but by no means least, there
are now major difficulties facing
ratepayers who wish to contest their new
assessments. The Valuation Tribunals in
England, which up to now have provided
a cost effective and acceptable facility for
ratepayers to challenge their assessments,
have been thrown into disarray by ill-
considered government intervention. A
new organisation, the Valuation Tribunal
for England, was produced somewhat like a
rabbit out of a hat on the 1st October 2009,
as a hopelessly flawed attempt to
shoehorn this highly specialised form for
valuation resolution into a ‘one size fits all’
social tribunal framework. It has quickly
become apparent that an almost total
lack of consultation by the government
and its agencies, which seem to have
little or no knowledge of the workings of
this particular and essential jurisdiction,
have resulted in regulations which are
now having to be revised, and practice
statements which are having to be
scrapped and re-written. In the meantime,
there is total confusion amongst all
parties concerned, including the Tribunal
themselves, as to how proposals against
entries in the Rating List should proceed.
Certainly, the considerably increased
complexity of the proposed procedures
can only result in increased costs to
ratepayers for a service which should be
available without financial inhibition.
However, on a more positive note, the
programming scheme for proposals to
alter the rating list served on the VOA,
which had fallen into such disrepute during
the 2005 List, due to its overzealous use by
the Agency to achieve internally imposed
clearance targets, is now the subject of
constructive discussion between the
interested parties, which will hopefully
produce a rational scheme to manage
proposals arising from the publication of
the Rating List on 1st April 2010.
Watch this space! █
Tom Dixon RD BSc (Est Man) FRICS IRRV (Hons) is an IRRV Past President, Council member and a senior partner with Sanderson Weatherall.
Last, but by no means least, there are now major difficulties facing ratepayers who wish to contest their new assessments.
““
There is slight surprise that the other geographical location for increase
is the South West region.
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The Tenant’s Share
In my first article, published in the December edition of Valuer, I explained something of the background to the receipts and
expenditure (R&E) method, used for the valuation of large utility
properties for rating purposes. I looked at what the courts had to
say on the matter of the tenant’s share before looking in more detail
at the first two of the four methods of how the “tenant’s share” has
normally been calculated by rating surveyors. These were:
1. Tenant’s Share as a percentage of gross receipts;
2. Tenant’s Share as a percentage of the divisible balance.
In this second article, I propose to look at the remaining two
methods in more detail:
3. “Spot figure” approachThe third method is to use the “spot figure” or intuitive method
of arriving at the “tenant’s share”. Included in this method is the
very common approach of splitting the divisible balance 50/50. This
is a common approach used for leisure properties. This approach
was adopted in the Bluebell Railway case, and one of the valuations
in Garton v Hunter, the holiday camp case, adopted the 50% of the
divisible balance approach. This default tenant’s share percentage
reflects the serious difficulty in estimating the value of the tenant’s
assets in circumstances where the tenant does not know how much
profit he will earn before the rent is fixed. In an amusement and
theme park valuation, for example, what part of a roller-coaster ride
is rateable, and even if you knew, what is its market value? What is
the market value of a couple of old elephants and a lion deemed to
be owned by the tenant in a zoo? Where would you go to get these
values for an R&E valuation?
4. Tenant’s share as a return on the market value of the tenant’s assets
This appears to be a straightforward exercise, and under perfect
conditions this is correct. However there are two significant
problems. The first one is to find the “market value” of the tenant’s
assets, and the second one is to find the percentage to be adopted.
i) Market value of tenant’s assetsThe market value of any asset is the present value of the right
to receive a future income. But this concept has to be applied to
the rating hypothesis. It seems to me that in the case of a tenanted
property, the right to receive a future income can be significantly
affected by the amount of rent that a tenant has to pay.
Take the example of a property where the business can produce
a profit of £2m before the payment of rent. If the rent paid by the
tenant was only £100, then he would have an income of just under
£2m. If however the rent was £1m, he would only have an income of
£1m. A tenant thinking of buying the assets needed in the business
would pay a lot more for them if they could earn him nearly £2
million per year than he would if they could only earn him £1m per
year.
This is unfortunately what rating valuers try to do in an R&E
valuation. They try to work out the rent of a property and make
various illogical assumptions regarding the value of the tenant’s
assets. The value of the assets depends on the future income earned
by the assets, but you cannot know that until the rent which a
The tenant’s share (part two)
Pat Brennan concludes his critical examination of ‘tenant’s share’, as he takes readers through this key aspect of valuation from the perspective of the rating valuer
RICS Rating Diploma Holders | 7
VALUER | March 2010 | www.irrv.net
The Tenant’s S
hare
tenant has to pay is known. It is all very circular and illogical.
Rating valuers sometimes get round this difficulty of finding the
market value of the assets required in rating valuations by starting
with the assumption that “cost equals market value”. Despite the
fact that it is unusual to find that “cost does not equal market value”,
particularly of assets which are a number of years old, rating valuers
generally adhere to this assumption both in their contractor’s
basis valuations, and to arrive at the value of the tenant’s assets
in their R&E valuation that cost equals value. They start with the
modern replacement cost, and adopt the mainly age-related
formulaic adjustments to arrive at what rating valuers think may
be their “market values”. Since the Monsanto Lands Tribunal case
(1998) RA 217 decision, the Lands Tribunal determined scales have
been adopted to adjust the replacement cost of items of plant and
machinery. These scales however do not seem to produce what
a normal businessman would regard as market values of items of
plant and machinery. According to the scales, the market value of an
eight year old piece of plant and machinery is the same as the value
of the item brand new. After the item plant gets to 30 years old, its
market value is 50% of its new replacement cost, but after that age
its market value stays the same.
If the “market values” of plant and machinery assets are
their replacement cost less Monsanto scale allowances for the
contractor’s basis valuations, the “market value” of the tenant’s
assets in an R&E valuation should be calculated in the same manner.
This is especially relevant for Class 1 electricity generation assets.
In a normal hereditament, the turbines and generators which
produce electricity to be consumed at the hereditament is rateable
under Class 1. In an electricity generating hereditament which
sells electricity and does not use it on the hereditament, the same
generator and turbine items are not rateable, and they will be
treated as “tenant’s assets” in an R&E valuation. Rather surprisingly,
the value of the tenant’s assets in some current R&E valuations
of electricity hereditaments in England and Wales have been
calculated not using the Monsanto scales allowances, but rather
using ‘straight line’ depreciation, thus producing lower amounts of
tenant’s capital and higher rateable values.
Another commonly adopted method of calculating the value
of the tenant’s assets is to use their net book value shown in the
company’s accounts. This is an even more unreliable method of
arriving at their market value, which relies on a historical twist
of fate, i.e. what were the prevailing costs when the assets were
acquired. In times when there was a buoyant market the price
would be high, but in times of oversupply the cost would be lower.
It also assumes that the company’s assets have not increased at all
and have gone down in value in line with their straight line book
depreciation methodology. None of these assumptions seem
logical.
A number of sales of utility properties have been analysed to
see whether the purchase price of the company is equal to the net
book value or regulatory asset value of its assets. In all cases this
has never been found to be the case. Apart from the electricity
power stations which sold at deep discounts to their asset values
around 2003, most utility companies’ properties have sold at prices
in excess of the net book value, adjusted appropriately for the
company debt.
(ii) Rate to be applied to the uncertain market value of these assets.
Rating surveyors have carried out the task of determining the
percentage to be applied to the value of the tenant’s capital since
at least 1926. However in 1994, parties to the appeal on China Light and Power v Commissioner of Rating and Valuation (Hong Kong) (1994) 1996 RA 475, an electricity property in Hong Kong, decided
that a rate to be applied to the value of the tenant’s assets was the
company’s WACC (Weighted Average Cost of Capital). Essentially
8 | RICS Rating Diploma Holders
www.irrv.net | March 2010 | VALUER
The Tenant’s Share
WACC is a fairly straightforward concept. If half the assets are
bought using borrowed money at a 5% interest rate and the rest of
the money to fund the purchase is funded by equity where a return
of 15% is obtained, the WACC of the company is 10%. The WACC
calculation is the province of economists. They make the simple
concept much more complicated, and spend hours talking about
betas, long term or short term risk free rates of return, equity risk
premiums, pre- or post-tax, cost of debt and financial gearing, real
or nominal. The problem is that WACC has nothing to do with the
return a tenant should receive on the value of his assets to arrive at
the “tenant’s share”.
The “tenant’s share” is not just a return for investing in the
business. The “tenant’s share” is to reward “a person embarking
upon a commercial undertaking in which he is to sink his capital, in
which he takes all the risks of success or failure, and in which he has
not merely to be compensated by receiving a reasonable interest
upon the capital invested, but also to receive such a profit upon
his venture as reasonably to compensate him for the risk which it
involves and to induce him to embark upon its prosecution”.
The conventional WACC is the return investors expect for
interest on the capital they have invested, and a reward for the
risk they have taken in investing in the business. The “tenant’s
share” is also meant to reward the hypothetical tenant for another
aspect – namely “remuneration for his industry”. If that reward is not
included in the “tenant’s share” there is no incentive for the tenant
to strive to maximize profits or minimize losses, or even to take on
the tenancy of the property.
If all a tenant earns from running a business is a return
equivalent to his WACC, he will never have any spare capital to
improve or expand his business. This is an aim that all operators
of businesses will strive for, so unless he perceives that his “profit”
will be more than his WACC, he will not take on the tenancy of the
property.
There is another reason why adopting a company’s WACC is not
the appropriate percentage to apply to the value of the tenant’s
assets in an R&E valuation. Companies’ WACC are derived from an
analysis of their accounts, profits and share price. The actual WACC
is always of a company which does not have the same risk profile
as the hypothetical tenant. It is generally of an owner occupied
business. Sometimes it relates to a business operating from many
locations, not just at the property being valued. The risk profile of a
tenant of a property carrying out a business where he is deemed
to take all the risks of running the business, and pays a
predetermined
rent to occupy
the property, is
significantly
different from the
risk profile of an
owner occupier of
the same property
where he does not have a predetermined rent payable as a debt
before the tenant can take any profit. The differing risk profile
means that the WACC of the owner occupier must be different from
the hypothetical tenant.
It is not known why the VOA is so wedded to using a very low
WACC percentage of 8% or 9% for their 2005 list valuations when
the VOA adopted at least 30% more than BT’s WACC of 9.9% in 1995
when it settled the assessment of British Telecom at about 13.6%.
So if WACC is not the correct percentage to adopt when
calculating the “tenant’s share”, what should the percentage be?
Using the normal approach adopted by valuers when
justifying their valuation, the use of comparables, it is appropriate
to look at what happened in previous cases, and after analysis apply
the result to the property being valued. The courts have found the
following percentages appropriate:
What is the market value of a couple of old elephants and a lion deemed to be owned by the tenant in a zoo?
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www.irrv.net | March 2010 | VALUER
Cairngorm Chairlift 18.0%
China Light and Power 25.0%
British Telecom 13.6%
Southern Railway (H of L) 15.0%
Brighton Marine Palace and Pier 15.0%
The one percentage that seems to be completely out of line
with previous cases is the VOA’s 2005 List percentage of 8% or 9%.
Leaving aside the 25% in the China Light and Power case in Hong
Kong, the percentage which seems appropriate is approximately
15%. This provides the tenant with a return which includes interest
on his capital invested, a reward for his risk (these two elements
comprise the normal WACC percentage) but also an additional
percentage to reward him for his enterprise, skill and remuneration
for industry.
(iii) Two stage calculation of the tenant’s share percentageTo ensure that all aspects of the tenant’s share have been fully
reflected, some valuers have approached the tenant’s share in two
stages. Firstly, the tenant is given a specific amount to provide
him with interest on the capital he has invested in the business.
The second stage is to provide him with a reward to reflect the risk
he takes operating the business from the property and his profit
for running the business. The second stage of the calculation is
sometimes related not to the value of the tenant’s assets, but rather
the turnover of the business or the amount of the divisible balance.
In Strand Hotels Ltd v Hampshire (VO) 1977 RA 265 this approach was
taken by the Lands Tribunal. The tenant was firstly awarded an
8% return on the value of his assets, and was given as his “share”
40% of the ‘divisible balance’ for his profit and risk. This two stage
calculation was also adopted in the Cross Harbour Tunnel (1978)
case in Hong Kong, where the tenant’s share was calculated giving
him an interest return of 8% on the value of his assets and a further
amount of 11% of the gross receipts. In the Cairngorm chairlift
case the two stage approach was also adopted. Again the tenant
was given an interest return of 8% on the value of his assets and a
further 10% for his risk and for operating the business.
ConclusionWhatever method is used to calculate the tenant’s share, the
important matter which valuers need to consider is that they are
tasked with finding the rental value of the property under
statutory rating
hypothesis. While
economists and
accountants can
inform Tribunals on
interest rates and
asset values used
in the “real world”
for accountancy
and investment
purposes, it is the job of rating valuers to determine the matters
which influence the parties to the “hypothetical” rental negotiations
assumed to have taken place to arrive at a rateable value. Most
of the utility properties in the UK were returned to conventional
assessment in the 2005 List. Their values are very significant, and
their assessments have generally been arrived at using the R&E
valuation method. It seems very likely that the Lands Tribunal will be
asked to consider some valuations in detail, and no doubt valuers
will put forward their views on how the tenant’s share should be
calculated at these hearings. Only after the Lands Tribunal have
given reasoned decisions on the tenant’s share element in R&E
valuations is there likely to be more of a consensus among rating
valuers on the correct approach to the calculation of the tenant’s
share. █
Pat Brennan FRICS Dip Rating is a consultant to Ruddle Merz Limited.
. . . the important matter which valuers need to consider is that they are tasked with finding the
rental value of the property under statutory rating hypothesis.
10 | RICS Rating Diploma Holders
““
themselves in the knowledge that their the knowledg
views informed the decision.he decision.
The English transitional scheme, sitional schem
ore inflation, limits ratebefore ate rises in
12.5% for hereditame2010 to 12 ments with
a rateable value of £18,000 or moa rateable va more,
and 5% for smaller hereditaments. Td 5% for sma s. This
is paid for by limiting reductions to d for by limitin
4.6% for large hereditaments and 20%large heredita
for small hereditaments. However, in reditaments. H
the first of various twists, an inflationous twists, an
factor has to be applied, and the RPI at plied, and thefa
eptember showed an annual reduction n annual reduSept
4% which makes the scheme morescheme moreof 1.4%
sgenerous.
face of it, taking inflatioation intoOn the fac
account, rate rises in 2010 will be limimitedount, rate rise
to 10.925% for large hereditaments25% for large
and 3.53% for small hereditaments. % for small her
Reductions will be limited to 5.9356% for will be limited
large hereditaments and 21.12% for small ents and 21.12
hereditaments. However, once again, thiswever, once aghe
ot quite the case because transition is ecause transitiis not
on the small business multiplier, and ss multiplier, abased on
so the 0.7p to pay for small business relief usiness relief so the 0.7p t
is outside transition. Also in Londodon, whereoutside trans
they apply, the 2p supplement for CroCrossrailapply, the 2p s
and the 0.4p premium in the City of Londndon 0.4p premium
are outside tratransition.
Worse still for some ratepayers will for some rate
be a reduction in small business relief, or asmall businesb
omplete loss of either small business relief er small busincom
ral rate relief. Like all changes to rate ll changes to ror rural
ese are not phased in by transition. in by transitiorelief, these
Although all reliefs have had the vhe variousAlthough all re
thresholds increased, this only worksorks if the esholds increas
rateable value increase at the revaluatiation is le value incre
near or below the average. Increases below the ave
in rateable value above theble value abo
national average can result average can r
in substantial losses of ntial losses of
relief.
First,
take the
Business Improvement Districts (BIDs). Business Improvement Districts (BIDs).
Does anyone recall that in 1989 we oes anyone recall that in 1989 we
were looking forward to the Uniformlooking forward to the Unifo
Business Rate? Will anyone still usingsiness Rate? Will anyone still using
this term, kindly desist immediatelythis term, kindly desist immediately!
In Scotland, they have decidedd, they hav
to match the English multipliers,to match the English m
and have already set theirs at 40.7pand have already set their
and 41.4p respectively, which is and 41.4p respectively, which
an interesting interpretation of nteresting interpretation of
devolution. Presumably, the same ution. Presumably, the same
multipliers are required so that Scottishultipliers are required so that Scotti
ratepayers have a level playing fieldratepayers have a level playing field
with their English competitors. Goodwith their English compe
heavens, if this idea catches on we could heavens, if this idea catches on we could
have uniform business taxes acrosshave uniform business tax
Europe! Where are the people who think urope! Where are the people who thi
that we should have lower taxes and a we should have lower taxes and
devalued pound in order to give Britain aued pound in order to give Bri
competitive advantage?mpetitive adv
In Wales, they have a singleIn Wales, they have a sin
provisional multiplier of 40.9p. It seemsprovisional multiplier of 4
that the Welsh Assembly Government justthat the Welsh Assembly Government justtt
don’t understand that rates are supposeddon’t understand that rates are supposed
to be complicated! There is still only onee complicated! There is still only on
BID in Wales, and I have detected little Wales, and I have detected lit
enthusiasm for adopting the provisions forusiasm for adopting the provisio r
a Business Rate Supplement. Consultation Business Rate Supplement. Consultatio
was held in England over the summer for awas held in England over the summer for aaa
new transition scheme for the 2010 rating new transition scheme for the 2010 rating
list. The choices revolved around four or list. The choices revolved around four or
five years and having transitional reliefve years and having transitional relief
as before, either paid for by transitionalfore, either paid for by transitiona
surcharge or a supplement on the multipliege or a supplement on the m err.
The government stated its preferred optionovernment stated its preferred op nn
was five years, with transitional relief paidas five years, with transitional relief paid
for by transitional surcharge, as in previousfor by transitional surcharge, as in previous
chemes. Guess what - that’s what the schemes. Guess what - th
government chose. Everyone, myself government chose. Everyone, myself
included, who thought that aincluded, who thought th
supplement on the multipliersupplement on the multiplier
would share the burden would share the burden
more fairly, can more fairly, can
consolecon
The revaluation has resultedas result
in new rating lists in England, gland
Scotland and Wales with overalld a
increases in value but a crop of ases in v
gainers and losers from the changes.and
After the resulting reductions in thections
multipliers and increases in the relief es in the
thresholds, there are still substantialsubs
gainers and losers. Ironically, ins and lo
England with its sophisticatednd with i
transition scheme, there will still ben sch
some surprisingly large changes in change
rate bills to individual ratepayers.tepayers
At the time of writing, we are we a
still waiting for the proposed rate ting for
multipliers for England to be confirmeders for E d
at 40.7p for properties that benefitor pr
from small business relief and 41.4p for and 41
everything else. Well almost, because ost, beca
in London, it is anticipated that Boris that
Johnson and the GLA will set a business nd t
rate supplement of 2p to pay for Crossraiplement il.
That would effectively increase the d effe
multiplier to 43.4p for all properties in roperti
the Greater London area that are above ahat are a
rateable value of £50,000. Of course, by the cou he
time that you read this, if a snap Generalyou rea
Election has taken place, then whateveras taken
the result, an incoming government couldn inc m d
be planning an emergency budget in budget
which Crossrail is delayed again, or even w gain, or
abandoned, despite the works already e s alre
taking place.
So that’s three multipliers then? No, no’s three ot t
quite because the City of London sets its owe the n wnwnwn
multipliers and if it follows the form of recene form nntntnt
years in setting a premium of 0.4p, there ye f 0.4p, th
would be three more multipliers of 41.1p,e iers
41.8p and 43.8p applying in the Citynd 43.8
of London only. Then there areondon o
some ratepayers in various me ra ri
parts of the countryntry
who are also
paying for
Business rates | 11
VALUER | March 2010 | www.irrv.net
Business ratesAs the business rate revaluation lies just around the corner, Gordon Heath explores the knotty problem of transition and the new list
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12 | Business rates
After the resulting reductions in the multipliers and increases
in the relief thresholds, there are still substantial gainers and losers.
““
It seems that the Welsh Assembly Government just donʼt
understand that rates are supposed to be complicated!
““
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anticipated 3.53%53%.
This is not the most extreme casee most extrem
possible. A rateable value increase that pos value increase
es a property out of rural rate relief takes a rural rate relie
only be a little above the national might onl e the national
average rateable value increase, average ratea se, but the
bill will more than double. This coul will more th ould
also apply to some of the larger increaspply to some o eases
on properties currently receiving small erties currently
business reliefef.
By way of balance, I could set outalance, I could
examples where a rateable value fall at therateable valueex
valuation might reduce the ratepayer’s uce the ratepareval
y over 50%, by combinibining the bill by ov
f transition and rate rerelief. The effects of t
big questions are how many ratepaepayers ig questions a
will be facing large increases and whawhatbe facing large
sectors or areas are affected? The or areas are a
government line is that it is a comparativelyelynt line is that i
small number of ratepayers overall. Myof ratepayers
discussions with various people around the various people
ountry suggest that small pubs and smallt small pubs ancou
ol stations are two types of propertytypes of propepetrol s
be facing large increareases.likely to be
nal thought is that, however bad a however bad aOne final
“comparatively small” number of ratratepayer mparatively s
facing increases of up to just over 100%0% might increases of u
be, it is nowhere near the outrageous 44,904,900%owhere near th
and 22,400% increases that were allegedly% increases tha
claimed on 10 January 2010 by an over-exciteddanuary 2010 by
Liberal-Democrat intern in a press releasentern in a presLib
ce rapidly withdrawn). It seems thatwn). It seems th(since
ver cuts the incoming government mustng governmenwhatever
make, we need more expenditure on educationiture on educmake, we nee
in mathematics! mathematics █
Gordon Heath BSc IRRV (Hons) is anandon Heath BScindependent revenues consultant. Thedent revenues
views expressed here are purely pressed here apersonal.
Gordon on can be contacted at at gordon.
surcharge of £9,069.47 above e 9 e
the £41,400 that they would pay 400 ld p
without transition. This equates tran uate
to a reduction of 5.4%, except in ct p
London where the Business Rate Lon e Bu
Supplement for Crossrail is likely to Sup rossr
add £2,000 to the bill, reducing theird bil
gain to only 1.65%.nly
However, I think that most large ever, most l
ratepayers will accept the transitions w an
scheme – it is the small ratepayers che ma
where there will be major problems. wher e ma
For most small hereditaments where or m dit
no rate reliefs apply, the increases ef ea
will be close to 4% and the reductions se to educ
around 20%, but changes to relief can %, b rel
have dramatic effects.ve s.
Take the example of a property witTa ple of ith
small business relief and a rateable value mall f and ue
of £4,500 in the 2005 list and £9,000 in th 9
the 2010 listt.
In 2010/11, the full bill would be:the f be:
£9,000 x 41.4p = £3,7260 6
Using the small multiplier:ing t iplie
Notional Chargeable amount = £9,000 x otion amo x
40.7p = £3,663p
In 2009/10, with 50% small business relief, with sine
the bill would have been:ld ha
(£4,500 x 48.1p)/2 = £1,082.25p)
Using the small multiplier:g t plier
Base liability BL = £4,500 x 48.1p = £2,164.50e liab 500 x 64.5000
Appropriate Fraction AF = 1.0353op F =
The transitional limit = BL x AF = £2,240.91al = £
Transitional relief = £3,663 - £2,240.91 = elief 240.
£1,422.09
The small business relief is now only 25% andma f is andd
therefore:efore
Amount payable = £2,240.91/1.333 = oun ,24
£1,681.10
Hence, the amount payableence, paya
has increased by a massive incr ssiv
55.33%, compared m
with the headlinee he
5% or the or th
example of a property with a xa p of pr e w h a
rateable value of £65,000 in theat bl al o 65 00 n t
2005 list and £100,000 in the 2010 00 is n 10 00 in e 10
list.st.
In 2010/11, the full bill would be:2 0/ t fu bi wo d
£100,000 x 41.4p = £41,4000 00 4 4p £4 40
Using the small multiplier, asin th m m lti e s
required in transition:qu ed t si n
Notional Chargeable amount = oti a ha ea e mo t
£100,000 x 40.7p = £40,70000 00 40 p £4 70
In 2009/10, the bill would have been:20 9/1 th bi wo d ve ee
£65,000 x 48.5p = £31,52£ 5,0 0 x 8. = 31 5
Using the small multiplieU ng he ma m ip r:
Base liability BL = £65,000 x 48.1p = B e bi y B = 5, 0 8 =
£31,265£ ,2
Appropriate Fraction AF = 1.10925A pro ria F ti A = 09
The transitional limit = BL x AF =T tr si n im = x F =
34,680.70£ 6 70
Transitional relief = £40,700 - £34,680.70Tr si n e f = 40 00 £3 68 70
= £6,019.30= ,0 3
Supplement for small business relief =Su ple e fo m b n r ef
£100,000 x 0.7p = £700£1 ,0 x 7p £ 0
Amount payable = £34,680.70 + £700 =Am un pa b = 4,6 0. + 00
£35,380.703 8 0
Hence, the amount payable hase e, e o t ya e h s
increased by 12.23%, not the headline nc as b 2 % o he ea ne
12.5% or the anticipated 10.925%. 2. o he nt pa d .9 %
However, as it is close to the headlineow ve as is os o e h ad e
12.5%, it is probably not going to worry th2.5 , i p ba y t g n o or the
ratepayer too much. Unless of course, it is te y to m h. nle o ou e, s inn
London, where there will be a Business Ratn n he t re ll a us es atte
Supplement which is likely to be £100,000 xp em nt hi is el o £ 0, 0 x
2p = £2,000 which in this example increase= 2,0 0 w ic n s am le cr seess
the bill to £37,380.70. This is an increase ofe b to 37 80 0. is an nc as f
18.57%, which might just worry the ratepay57 , w ic mi t j t w rr he at ayyeer.
Conversely, take the example of aC nv se ta t e m e o
ratepayer benefiting from a rateableep ye en fit g f m ra b
value reduction from £110,000 in the va e du o ro £ 0,0 0 i he
old list to £100,000 in the new list. d t t £1 0 in he ew st
The annual bill will only fallT e a nu bi wi n al
from £53,350 in 2009/10 ro £ 35 in 00 10
to £50,469.47 in£ 4 47 n
0010/112 10 ,
which is a wh h i
www.irrv.net | March 2010 | VALUER
Valuation in Europe | 13
VALUER | March 2010 | www.irrv.net
In this first in a series on European valuation issues, my
purpose is to give the big picture and address the key question
– why are there European valuation issues when property is such
a local thing requiring very local knowledge? And if there’s been
some globalisation of real estate investment and valuation, then
surely international standards are what are needed, not European.
Why Europe?
In this article, I’ll explain why, in my view, the European Union
is the new frontier for property investment, how the opening up
of that frontier is going to help us emerge from the crisis, and how
valuation, and very specifically The European Group of Valuers’
Association’s (TEGoVA) European Valuation Standards (EVS) and
Recognised European Valuer (REV) scheme, are a central part of the
whole process.
What’s European about real estate?I know that for many readers of this magazine, it’s not obvious.
Most people take pan-European property investment for granted,
as if it were some kind of automatic fallout from
‘globalisation’. And yet,
current events are making
it clear that, in a world of
sovereign states, where
treaties and ‘open markets’
are here today and gone
tomorrow, nothing is guaranteed, especially concerning the right
to buy land and buildings. Witness, even before the crisis, China’s
crackdown on foreign property investment, about which nobody
can do anything.
The only place cross-border property investment is guaranteed
is the EU, because it’s not a trading bloc, it is a union of European
citizens founded on real political institutions and a real Court of
Justice that guarantee the right for everybody to buy and sell
property wherever they want, without obstacle.
The very meaning of ‘freedom to invest in property’ varies
from night to day depending on whether you’re talking global or
European. Globally, it means, at best, that there’s no law formally
forbidding foreigners from buying local real estate. Beyond that,
there can be any amount of controls, and foreign investors are
often a captive market for all local real estate service providers. In
the EU, freedom to invest means the whole package. Investors can
not only buy wherever they want, they can use their own estate
agents, valuers, architects and contractors, from the investor’s home
country or from anywhere else in the Union. And above all, the EU
means security – these freedoms can never be repealed.
This was not done in a day. It took more than thirty years just to
get free movement of capital, the basic building block of cross-
border property investment.
Then there’s the great penchant of national governments to
obstruct. The European Court of Justice had to build up case law
neutralising governments that paid lip service to the principle of
freedom to buy property, but kept inventing niggling administrative
requirements for foreigners only. Only the EU can overcome that
kind of bureaucratic interference, and it does.
New entrants to the Union often have land purchase fears. In the
last big accession wave, several candidate member states tried to
retain controls on property investment for ‘transition periods’ of up
to 18 years. The European Property Federation, with which TEGoVA
now works closely, explained to the European Commission that this
would undermine the whole foundation of the EU Internal Market,
mortgage lending in particular, not to mention the damage to local
people deprived of a competitive property market. The Commission
took this point and stood firm.
Recently, there was an attempt to exclude real estate services,
including valuation, from the scope of the Services Directive. That,
too, was defeated, but it shows how resistant local privilege and
captive markets are.
On any market, the health of valuers’ clients, property investors,
Valuation in EuropeRoger Messenger explores the ‘new dawn’ for European Property Markets, putting valuation at the centre of EU real estate policy
. . . the European Union is the new frontier
for property investment.“
“
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14 | Valuation in Europe
The second fundamental impact of the EU on real estate is the fight against climate warming.
““
depends not just on the services investors offer, but on those
they receive. The EU competition authorities have a long tradition
of uncovering and dismantling European cartels of companies
that provide goods and services to building owners. Valuation
services have never been a problem, but contractors and building
component suppliers have, and recently, lift and escalator cartels
were fined a record €992 million, and property companies can seek
damages on top of that.
The new wave of EU regulationThus, free movement of capital, freedom to provide services
and free competition are the bedrock of property investment
across the EU. It took decades to achieve that, but now Europe has
entered a new period of political and economic integration which
is helping property markets and at the same time, supervisory
legislation regulating property fund managers and the
dismantling of the last obstacles to cross-border property
investment are making a substantial contribution in their own
right to a stronger and safer European economy. On top of that, EU
energy and environment policy targeting buildings is opening up
new property investment and valuation opportunity.
Looking first at the EU internal market, if there’s one thing
now obvious to everyone, it’s how dependent real estate is on the
financial system. Imagine what would have happened without the
euro. A number of Eurozone countries could have seen their local
currency collapse, and the local economy and real estate could
have gone down with them. Think what would have happened if
Eurozone leaders hadn’t led in stemming the financial blow-out. We
can now face a future where the economy and the property markets
that emerge from this will be shaped by the European Union and its
priorities – a unified market underpinned by a dynamic, low-carbon
economy.
On this macro level, first, real estate will benefit along with the
rest of the economy from extension of the Eurozone to cover almost
the entire Union, with the power of the euro felt well beyond its
borders.
Second, before this year is out, there will be true European
oversight of the solvency and liquidity of credit institutions. To what
extent this will be done by a centralised European authority alone,
or in collaboration with national regulators, remains to be decided,
and as ever in European integration, there will be trial, error and
gradual improvement, but the political will is now there. In the
current context, it’s hard to overestimate the importance for the
property industry of stronger, safer financial markets.
But equally essential for the whole economy is the safety and
security of the property markets themselves, and crucial to that are
two fundamentals:
1) new EU supervisory rules directly targeting real estate fund
managers and their valuation practices, and
2) removing the final obstacles to cross-border property
investment and mortgage lending.
That’s why TEGoVA is working with the European authorities
on the valuation aspects of the supervisory rules and why TEGoVA,
the European Property Federation (EPF) and their allies are leading
the effort to get EU legislation facilitating cross-border investment
by real estate investment trusts, or REITs, and by open ended real
estate funds.
The second fundamental impact of the EU on real estate is
the fight against climate warming. Buildings are key – 40% of CO2
emissions come from buildings – and the EU, working with us, has
produced a raft of legislation that could make European real estate
the world leader in carbon reduction and in overall environmental
performance. Energy performance renovation and certification
requirements for buildings are being increased, including
renewable energy, and also extended to water performance of the
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allies, there will be harmonisation of the certification categories of
commercial buildings so that investors and developers can market
their environmentally cutting edge buildings globally, and valuers
can start integrating the EU energy grades into their reports. The
EU ‘Ecolabel’ is being extended to buildings, EU green public
procurement is prioritising construction, and construction products
will have to be more environmentally friendly to earn the EU CE
mark facilitating cross-border trade. EU flood management rules
are keeping property above water and EU money is repairing the
damage already done, for instance in the UK.
It all means a sea change to planning, construction and
investment culture for half a billion people, a massive challenge and
opportunity for investors and valuers.
TEGoVA at the heart of the processAll these events have placed valuation issues at the centre of
EU policy and TEGoVA at the heart of the legislative process:
• The Energy Performance of Buildings Directive imposes
energy performance certificates (EPCs) for all buildings in
Europe, but it won’t realise its full potential until valuers
actually factor into their valuations the EPC and the grade it
gives the building. TEGoVA is working on that, adapting EVS
and REV accordingly;
• On the Alternative Investment Fund Managers Directive,
TEGoVA is working with the European Commission, the
European Parliament and the Council of Ministers to ensure
independent valuation of real estate assets and valuation
frequencies adapted to real estate;
• In the work on an EU passport for open ended real estate
funds, TEGoVA is working with the Commission on
harmonised rules on frequency of valuation, valuation and
the sale and purchase price, notification of the valuer to
the regulator and minimum professional indemnity
insurance cover for the valuer;
• The European Commission wants to free up the mortgage
credit market so that people can use their own home banks
to buy secondary residences wherever they want – valuation
is crucial here. The Commission’s draft recommendation
suggests that member states promote the use of TEGoVA’s
European Valuation Standards and that member states
should ensure that minimum professional qualifications for
property valuers “such as those set by TEGoVA” exist and are
adhered to within their territory.
But perhaps the most exciting aspect of all this is the extent to
which the success of cross-border property investment depends,
not just on EU law, but on the rules and safeguards set and policed
by the valuation profession itself. That’s because common European
valuation practice is truly market-led. In a cross-border context,
first-time investors on a new and strange property market need
reliable local valuation more than anybody else. They’re more
dependent on valuation than they would be in their home
countries, which is why they need the assurance that their local
valuer works according to the same core European valuation
standards as in the investor’s home country. Just as important,
the investor needs to be sure that the local valuer is qualified to a
recognised high European standard. That’s why TEGoVA’s European
Valuation Standards and its REV scheme have become central to
the whole European cross-border property investment and
valuation process, a cornerstone in a process of political, economic
and business practice integration that could see Europe emerge
from this crisis with the most efficient property market in the
world. █
Roger Messenger BSc FRICS IRRV (Hons) MCIArb REV, Chairman of TEGoVA, is Junior Vice President of the IRRV and Senior Partner with Wilks Head and Eve.
VALUER | March 2010 | www.irrv.net
Valuation in Europe | 15
. . . the investor needs to be sure that the local valuer is qualified to
a recognised high European standard.
““
16 | VOA focus
Philip Evans tackles the valuation of property of mixed age
Many properties change over time. This is particularly true of
large industrial properties that may have evolved over the decades,
with each part having its own character and qualities. It has often
been of concern to valuers how to assess those parts in the context
of the hereditament as a whole. A recent decision in the Lands
Tribunal concerning a rating appeal on a large industrial property
has helped shed light on this potentially troublesome area.
How can valuations reflect the age, constructional and quality
differences in a hereditament?
• Does one value overall, reflecting the age of the majority?
• Does one value each part of different age at different rates?
• Does one then make an end allowance to reflect those
differences?
• How should that be quantified?
Using the first method may fail to take account of the added
value the newer parts bring, whereas valuing using the second
method may value the property as though each part of a different
age is, in effect, a different property and any end adjustment may
be difficult to quantify.
In Allen (VO) v. Freemans PLC the Lands Tribunal preferred
the approach of applying higher values to the more modern
accommodation rather than the overall approach as adopted by
the respondent. The differences between the rates applied were
significant and drawn from the industrial levels in the locality for
that particular age group. This evidence was preferred to that of the
actual rent on the property, which was disregarded by the tribunal
as having no merit as it was, essentially, a surrender and renewal
arrangement.
The property in question is large – a warehouse and premises
of nearly 105,000 metres squared, located in Peterborough and
used for the storage and distribution of catalogue goods. It was
originally built in the 1960s, but extended in the 1980s and
1990s. The 2005 compiled list rateable value (RV) was
£1,770,000, and the Valuation Officer (VO) asked for
£1,760,000 RV at the Valuation Tribunal (VT) hearing,
relying on comparable evidence. Agents for Freemans
asked for £850,000 RV, based upon the rent passing
on the property. The VT decided the assessment
should be £850,000 RV based on that rent. The VO
appealed to the Lands Tribunal and Freemans appeared as
respondents. The Lands Tribunal have now decided that the RV
should be £1,675,000. 76% of the property is of 1960s generation,
and the remainder was composed of 22% 1980s and 2% 1990s.
On the valuation of the mixed age hereditament the
respondent’s valuer adopted values that reflected the age of the
hereditament as a whole, rather than an amalgam of three different
aged buildings/extensions. He stood back and looked at the overall
nature of the hereditament, which he claimed was dominated by
the 1960s warehousing.
In the decision, the tribunal considered there was no
comparable evidence to support the respondent's approach – ''I
do not accept this approach and I prefer Mr Allen's method of
valuation, which places a higher value upon the more modern
Freemans accommodation.'' The VO was able to demonstrate this
approach had been accepted elsewhere.
There was also some difficulty with the use
of evidence
of smaller
standalone
buildings to
value the later
1980s and 1990s
accommodation
forming part of
the hereditament. This was because such comparables reflected
a different market to that of the larger building. However the
Lands Tribunal accepted that it was correct to use such evidence,
providing it was coupled with an appropriate end allowance to
reflect the mixed age characteristics.
In judging the quantum of the end allowance, which
covered not only mixed age but a cramped site and a piecemeal
development, the tribunal adopted the use of base prices of
comparable properties which they accepted reflected similar
disabilities and therefore did not require further adjustment.
In conclusion, the key point in the judgement of how to value
mixed age properties lies in the establishment of evidence. As
the Lands Tribunal demonstrated, it prefers to value mixed age
properties at values geared to the local evidence for the age of each
part, and then make an allowance for the fact that they form part of
a larger hereditament. The quantum of that allowance should also
be established by evidence. To value on an overall rate reflecting
the majority floor space of the hereditament fails to take account of
the added value the newer parts bring. █
Philip Evans is Specialist Adviser (Industrial) with the Valuation Office Agency’s Rating Directorate Valuation and Policy Team.
In the decision, the tribunal considered there was no
comparable evidence to support the respondent s̓ approach.
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Cover story: visualising landvaluescape | 17
When I retired from the Survey Branch
of the Royal Engineers in 1994, having
acted as a kind of ‘internal consultant’
to UK defence forces on how to use
computer modelling of the physical
landscape, I became interested in how the
same techniques could be applied to the
economic landscape: Landvaluescape.
I had been lucky enough to spend
over half my 14 years in military surveying
in a pseudo-civilian capacity – first with
Ordnance Survey’s Development Branch in
Southampton in the early years of digital
mapping, seeing how local authorities,
the property industry and public utilities
in particular could use map data, and then
with the Australian Army, mapping their
‘outback’….and finally with the Hong Kong
government, helping prepare for British
withdrawal.
Australia and Hong Kong have more of
their tax revenue raised from land values
than anywhere else in the world. It seemed
to me no coincidence that they also
have among the finest ‘fiscal cadastres’
– property databases. So a link between
mapping land values and taxation was
established in my mind when I started
serious academic research on the subject
at Kingston University in 2002.
The hypothesis for my doctoral
thesis1, completed last year, was that the
concept of Visualising Landvaluescape now
offers discernable public and commercial
benefits for Britain, sufficient to justify
immediate and coherent steps to be taken
to overcome any institutional, technical
and policy (including tax policy) barriers
that might be exposed.
This article summarises, for British
professional valuers, what my research
found. It draws on four strands of research
work:
• the experience of selected other
countries;
• the views of a multi-disciplinary
British-based ‘virtual committee’ of
experts;
• an attempt to map land values
assessed by a professional valuer for
a trial of Land Value Taxation (LVT)
in part of Oxfordshire; and
• a thorough literature review.
Surveys I carried out in 2002 and
2005 of members of the World Congress
of Surveyors (FIG) showed that national
property tax systems invariably underpin
any nation-wide comprehensive, detailed
value mapping. In those systems, use of
computer-aided mass assessment (CAMA)
together with geographic information
system (GIS) techniques is becoming de rigour in all developed countries.
Five countries where such systems
have recently been modernised to take
advantage of latest technologies were
studied in detail: Denmark, Sweden,
Lithuania, Australia and the USA – the
The principle of land value mapping has many uses, and the UK should be listening. Tony Vickers expounds his theories for the benefit of Valuer readers
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Visualising Landvaluescape
18 | Cover story: visualising landvaluescape
latter exhibiting a cross-section of
systems generally run at county or state
level, from the most advanced to some
relatively arcane property tax assessments.
Visits were made to the three European
comparator countries.
Whereas their value mapping is
invariably designed purely to meet the
needs of tax authorities – more often for
internal quality control than for public
viewing – some property professionals
in many countries are now anticipating
potential uses in other areas, spatial
planning decision making (by both public
and private sectors) and insurance risk
assessment being the most interesting. The
EU itself used the word ‘landvaluescape’
in 2004 in a study of the economic impact
of sea-level rises that might result from
climate change.
Probably because Britain does not
have a comprehensive property tax
system, the 29 experts and value mapping
stakeholders2 who participated in three
rounds of questionnaire in a controlled
Policy Delphi in 2003–4 accepted fairly
readily that the novel concept of mapping
Landvaluescape was potentially useful. At
the outset of the study, it was of little or no
concern to them. Yet they were prepared
to engage with the subject.
The Delphi research technique was
chosen because it allows people with a
wide variety of professions and interests
to cross-fertilise views and ideas and
approach consensus on complex policy-
related matters. By taking full advantage of
internet technology, so as not to actually
meet at all, the Delphi participants’
collective pool of knowledge is enhanced,
in a way which minimises costs to all
concerned and pressure from dominant
individuals. My PhD supervisors monitored
my moderation of the Value Mapping
Delphi Process throughout, from selection
of participants through to final analysis and
feedback of results at a workshop in 2005.
The Delphi Group concluded by
broadly accepting an indicative Action
Plan for British Value Mapping (see
Figure 1)3. This broke down the concept
into three ‘scales’ of mapping and two
indicative programmes of action to take
the concept forward – one “market led”
and the other “tax reform led”. At each
scale, for the products to be of general
use, some leadership from government in
developing standards for property-related
geographic information (GI) is needed: a
“GI Champion” to pull together disparate
initiatives from various UK government
departments.
At the crudest level, it is possible now
to map categories of land value such as
‘house prices’ at local authority level.
Intermediate scale mapping, roughly at
postcode sector level, is less feasible, but
has been attempted for major transport
infrastructure project feasibility studies4.
‘Full’ value mapping requires
discrete site valuations or assessment of
neighbourhoods with no more than a few
hundred properties each, linked carefully
to detailed land use patterns and defined
‘break lines’ such as roads and rivers. This
can only be expected to happen if there
is a comprehensive modernisation of
property taxes, preferably recognising
the different ‘dynamic’ of land values as
distinct to the value of built property.
In North America, even when land and
buildings are taxed at the same rate,
assessments must distinguish these two
elements in tax/rating lists, which allows
value maps to be derived much more easily
than in the UK.
The pilot ‘desk study’ of LVT by
Oxfordshire County Council and Vale of
White Horse DC proved conclusively that
site valuations can be carried out with no
more difficulty than in other countries,
providing the definitive property market
transaction data and planning constraint
. . . a link between mapping land values and taxation was
established in my mind when I started serious academic research.
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Cover story: visualising landvaluescape | 19
data are
made available. The
trial used a former VOA valuer who
had to rely entirely on locally sourced
market data. The GIS officer of the rating
authority, which had already produced a
land parcel map of the district, mapped the
site values for use in a variety of theoretical
revenue yield calculations for ‘winners and
losers’ under LVT. Delays caused by lack of
staff and appropriate software in the local
authorities meant that the ‘landvaluescape
model’ wasn’t ready in time to present to
the Delphi Group. The literature review
revealed that the use of automated
valuation methods (AVMs) generally and
CAMA for tax assessment specifically is set
to grow rapidly worldwide, at least where
property markets are mature or being
developed. The technology is mature and
GIS/CAMA systems are easily adapted
to different national property datasets.
International agencies and professional
bodies invariably recommend that land
value is part of national land information
‘cadastres’.
The almost unique nature of British
land policies – lack of both a cadastre and
of comprehensive property taxation –
means
that property
professionals, especially valuers, are
unfamiliar with these new technologies.
In addition, the extremely commercial
attitude taken by Ordnance Survey
towards preserving its revenue from base
mapping data – a ‘low volume, high price’
business model – has acted as a brake on
the spread of applications using definitive
GI. Although a Parliamentary Inquiry
20 years ago found no good reason to
withhold VOA source data from public use,
this secrecy continues to be an obstacle to
research.
Perhaps the most interesting
conclusion from my research is that,
despite these apparently poor prospects,
Britain could yet see the most extensive,
up-to-date, detailed and accessible Value
Mapping system in the world within ten
years, given the political will to allow
increased sharing of publicly funded
datasets. The quality of our data is very
good, thanks to the professionalism of
those working at the ‘sharp end’ of the
agencies
concerned. What is
needed is a holistic, government-
led partnership to look at the costs and
exploit the benefits of making best use of
this data – as OS’ Minister John Denham
said recently in “Making Public Data
Public”.
Indications are that the benefits to
the commercial property market alone
would be much greater than the costs
incurred by government in enabling
and coordinating the project. Recent
experience of HIPs, where wider uses of the
data were consciously prevented by the
officials involved, does not give grounds
for optimism. █
Tony Vickers MScIS MRICS is a ‘life-long advocate of better uses of computer based graphical information’. Contact him through his website – www.landvaluescape.org.
At the crudest level, it is possible now to map categories
of land value such as ʻhouse pricesʼ at local authority level.
FOOTNOTES:
1 The full thesis can be accessed at www.landvaluescape.org under “Our Papers”.
2 The Delphi Group included 14 people self-assessed as at least ‘moderate’ at Property Valuation, of whom two were acknowledged experts with international experience. Nine other people were experts in Spatial analysis, Land/tax policy or GI policy. The remaining participants were in the Group primarily as potential users of value maps, not as experts. Identities were not revealed to other Group members.
3 Figure 1 is Figure 7/1 in the thesis (page 248).
4 ARW, Geofutures, UCL, and the Symonds Group (2003). “Land and Property Value and Public Transport Investment – Mapping Changes in Property Values around the Croydon Tramlink”, Report prepared for the RICS, ODPM and DfT, London, October.
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20 | Planning and compulsory purchase
clone evidence, clone effect
With retail development policy failing town centres, Stan Edwards argues that it’s time for a more integrated approach to planning decision-making and CPOs
A statement by the CLG Secretary last year announced new
measures to protect small shops and create more vibrant town
centres by strengthening Planning Policy Statement 6: Planning for town centres (PPS6).
The proposed ‘impact test’ for new grocery floorspace over
1,000m2 is intended to be tougher, to safeguard small shops in the
high streets and retain the distinctiveness of town centres. It could
be seen to provide councils with more scope to refuse out-of-town
development proposals that threaten the survival of high streets
and small shops. In other words, councils will assess whether
proposed developments are sustainable.
It could also be seen as a forerunner of the ‘competition test’
recommended by the Competition Commission. The PPS6 draft
inserts a number of references to competition and competitiveness.
This might be interpreted as prioritising economic competitiveness
over other factors in the decision-making process, enabling more
out-of-town superstores.
The proposals retain the ‘sequential test’, but abolish the blunt
‘needs test’, which unintentionally stifled diversity and consumer
choice by assessing only whether there was enough consumer
spending capacity to support new retail floorspace.
PPS6 was designed to help revive town centres by concentrating
retail development in and around them. Many retail development
projects have been actively promoted by local planning authorities,
who have seen superstores as a regeneration solution for town
centres.
The opening statement in PPS6 declares that ‘Sustainable
development is the core principle underpinning planning’. If this
principle were truly applied throughout what is now known as the
‘development management process’, many of the current problems
of maintaining distinctiveness in town centres and reducing
negative trading impact would be much less common.
The objective of this article is to look at the relationship
between the purely planning factors applying to town-centre
developments, and the distinctive CPO issues that arise in the same
context.
The current assessments1. The ‘sequential test’
PPS6 is meant to facilitate sustainable retail development, but
unfortunately is based on the erroneous assumption that out-of-
town grocery retail creates problems only for town centres. In fact,
convenience retail impacts on any centre in close proximity to it.
The sequential test forces superstores into town centres,
creating – with the blessing of PPS6 – the ‘clone effect’, i.e. town
centres that are occupied by the same selection of multiple traders
regardless of where they are located in the country. This is even
more of an issue in planning and CPO schemes where the planning/
acquiring authority has a pecuniary interest in the development, as
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Planning and compulsory purchase | 21
PPS6 was designed to help revive town centres by concentrating retail development in and around them.
Council’s proposal in Shirley.
Additionally, superstores bring non-food lines that extend their
impact to other retail categories in the town centre. Also, a feature
of development in town centres is that they attract increased traffic
to a level that destroys the town’s distinctiveness.
The development of retail in edge-of-centre and out-of-town
locations (either new or district centre replacement) have the
greatest impact where they impose a major competitive effect
on adjoining neighbourhood/district centres and corner shops
and the communities relying on them. An example of this was
the decimation of the 1970s Maelfa District Centre in north-east
Cardiff, due in part to general changes of retailing, orientation, and
layout, but mostly to the impact of superstores in adjoining areas.
Convenience retail developments in out-of-town locations are less
likely to impact the town centre in grocery-retail terms, contrary to
the stated assumption in PPS6 and consultation documents.
2. ‘Need’
The ‘needs test’ is an incomplete assessment that merely
measures, in quantitative terms, the gap between patent and latent
disposable income in an area, and the ability of existing facilities
to meet this. Using the ‘needs test’ often means that ‘clone town
centres’ are the result of ‘clone evidence’ – in other words, the
formulaic structuring of the evidence predetermines the outcome
to be exactly the same in each location.
Although it has social characteristics, retailing exists primarily as
an economic activity, and positions itself where revenues maximise
profitability (financial sustainability). Demand is the prime driver,
and the factors of demand provide insight into what causes centres
to succeed or fail. The main consideration is spending power
(embodying the ‘needs test’), plus that elusive element ‘consumer
preference’.
It is clear that the method of retail assessment required to
satisfy PPS6 has a number of complications which make it difficult
to operate. Where the proposal also includes a request to the local
authority to employ CPO powers to assist in land assembly, the
problems of assessment are further compounded.
CPOs and an integrated approach to policyEssential to justifying a CPO for a retail scheme is a
‘compelling case in the public interest’. ODPM Circular 06/04
also requires that all policies, statute and related
orders must be considered. Additionally, the scheme
should
be capable of
complying
with planning
policy. This
implies that a
planning
assessment would have been made in advance.
1. CPO procedures are obliged to follow the guidance that
the public good should outweigh private interests. This
is no longer sufficiently explicit in the policy contexts of
‘sustainability’ and ‘well-being’.
2. The CPO scheme should not be capable of being defeated
on planning grounds. Currently, the way of ensuring this is
to follow planning policy – PPS6. In applying the sequential
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22 | Planning and compulsory purchase
Demand is the prime driver, and the factors of demand provide insight into what causes centres to succeed or fail.
test under PPS6, the acquiring authority can rely on PPS6 to
promote an in-town scheme as an alternative to an edge-of-
centre proposal.
The difficulties in reconciling what at times may be competing
interests between the planning application process and the CPO
process are increasingly coming to the fore. Where the
local authority also has a commercial interest in the project
proceeding, the challenges become further complicated.
The ‘new heart for Shirley’ scheme in Solihull is just one
such case. After an edge-of-town-centre superstore application
was refused planning permission, an application for an in-town
superstore by the same operator in partnership with a developer
was granted permission. This proposal had the
partnership support of Solihull Council, which actively
endorsed the
application
and agreed to
promote a CPO to
achieve a retail-
led mixed-use
scheme.
This decision points up the distinction to be made between
the local authority as representative of the community interest
and the local authority as protector of its corporate interest.
The latter raises concerns about the LA’s obligation to manage its
assets efficiently versus its obligation to achieve certain social
objectives.
In this instance, the public good versus private interest
balance meant that public corporate plus private corporate
interests outweighed public (community and environmental)
interest plus small private business rights. The acquiring authority,
Solihull MBC, had a vested commercial interest in the scheme, which
also involved the taking of a section of an established
public open space, the town park, by procedures that were
challengeable. Nevertheless, the inspector at the inquiry and then
the Communities Minister confirmed the order on the basis that, on
balance, the policies had been followed and the scheme was in the
public interest.
Some relevant points can be drawn from this:
• The statement of reasons for the CPO stated that the three
‘wellbeing’ factors required for its empowerment could be
demonstrated, but there was no evidence of them being
assessed. Earlier in the process, some council members had
expressed concern about environmental wellbeing, because
part of the park would be lost. The distinctiveness and
social belonging elements of Shirley Park were central to the
case – perhaps even more so than the replacement of the
retail elements, which were showing signs of degeneration
in this part of the town;
• Sympathetic reinforcement of wellbeing, rather than radical
replacement, should have been the approach;
• The ‘needs test’ showed that there was sufficient
surplus spending power to support the scheme, but the
town was not without other superstores, in town and out
of town. Consumer preference in the matter was not really
challenged;
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Planning and compulsory purchase | 23
What is really required, therefore, is a test that assesses wellbeing
against a backdrop of sustainability.
• The ‘sequential test’ argument ‘town centres first’ was
used to promote the scheme, following policy to the letter.
The ‘impact test’ applies to out-of-town retail, when
actually an in-town wellbeing (economic, social,
environmental) test would have provided the required
input;
• It is difficult to apply the rules of natural justice where the
council have a pecuniary interest in the proposal. In such
cases, there should be a degree of independence in the
assessment;
• Clone towns are derived from clone evidence in inquiries.
The public interest, wellbeing and sustainabilityWhat is really required, therefore, is a test that assesses
wellbeing against a backdrop of sustainability – in other words,
that will effectively apply PPS1 (sustainability) and PPS12
(statements of community involvement and cross-boundary
framework) at the same time as PPS6. The retail assessment
elements could then be assessed in a logical and established
framework. The proposal for an all-embracing PPS4 to
incorporate and replace a number of PP statements,
including PPS6,
has recently
been published
for consultation.
Instead of creating
yet another impact
test based on
more stated criteria, the UK government might wish to attempt to
reconcile and apply existing provisions.
How a CPO scheme commences is an important
consideration. If it flows directly from policy, all the sustainability/
wellbeing elements would be prudently factored in. It is when
acquiring authorities have to consider proposals that do not
originate from policy (i.e. where, for example, a developer asks the
council for assistance to deliver its project) that attempts to
retro-fit the project to policy make cohesive assessments
difficult and increase the risk of distinctiveness/clone town
problems.
The concept of public interest in town and country planning
terms should now be considered to include the ‘countervailing
power’ element of community engagement, as well as the
public interest (or good) being viewed in terms of wellbeing
and sustainability. Under the Local Government Act 2000, local
authorities were empowered to promote schemes for the economic,
social, and environmental ‘well-being’ of their areas, following a
public engagement exercise.
Community engagementPart of the answer to an effective impact test lies in community
engagement. Instead of a process offering merely token exposure
to a proposal, it can be approached on two levels:
1. Social/environmental wellbeing. Community members as
inhabitants require consideration of social factors;
2. Economic wellbeing. Community members as consumers
view large stores positively, particularly in respect of
convenience and the economies of scale.
PPS1 requires sustainable economic, social and environmental
local planning policies, again involving the community. Applying
this, the public interest would be best served by a ‘well-being
assessment’ providing insight into the impact on existing and future
generations of moving from one state of ‘wellbeing’ of the town
(holistically) to another. Revisiting the statement at the beginning of
PPS6 that ‘Sustainable development is the core principle underpinning planning’, we have come full circle. It seems obvious that a test that
would enable assessment of proposals in the interests of sustainable
governance might contribute to resolving the potential conflicts
that clearly arise. █
Stan Edwards, a chartered surveyor, is a Director of Evocati Consultancy, specialising in the CPO process. He is also visiting lecturer in retail planning and development at Cardiff University and formerly Vice-Chairman of the Compulsory Purchase Association. [email protected] article first appeared in the RICS Land Journal September-October 2009 and is reproduced by courtesy of the Royal Institution of Chartered Surveyors.
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SCHOLES V. KIRKLEES COUNCIL
A claim under Part 1 of the Land Compensation Act 1973 in respect of three sets of
road works which were alleged to affect the property. The matter had been previously
referred to the Tribunal, and it had made a determination of compensation. The current
case related solely to one set of road works. The Tribunal found that particular set of
works had not affected the subject property and no compensation was awarded.
BHATIA AND OTHERS V. SECRETARY OF STATE FOR TRANSPORT; AYTAN AND OTHERS V. SAME;
This was a series of cases arising from the acquisition of tubes of sub-soil required for
the construction of the Channel Tunnel Rail Link. The Tribunal awarded the sum of £50
per claimant in respect of the sub-soil, on the grounds that there was no market for the
acquired property.
GRIFFITHS V. SALFORD CITY COUNCIL
Valuation of a residential property acquired under compulsory purchase as part of
a Regeneration Area. Whilst rejecting the valuations produced by the claimant, the case
indicated the problems associated with the valuation of this type of property and in these
circumstances. It highlighted the approach to be adopted as outlined by the acquiring
authority.
SINGH V. LONDON DEVELOPMENT AGENCY
Valuation of, for compulsory purchase, a former bus garage and yard, with both the
yield and rental value being disputed.
PERSIMON HOMES (MIDLAND) LTD, ST. ALBANS DIOCESAN BOARD OF FINANCE,OLD ROAD SECURITIES V. SECRETARY OF STATE FOR TRANSPORT
Valuation of land acquired for the construction of a bypass. The issue related to what
development should be disregarded in arriving at the market value of the interest,
whether the land had hope value, and whether there should be set off of any betterment.
BROOKER V. UNIQUE PUB PROPERTIES LTD
On lease renewal of a public house, the tenant disputed the approach to be taken to
the calculation of the new rent. The methodology for assessment was for the hypothetical
tenant to attempt to forecast the probable profit before making an offer for licensed
premises, taking into account anticipated turnover from sales. The matters that would be
considered by the tenant were:
(a) the effect of the prevailing economic crisis and consequent restrictions on the
availability of ready, inexpensive capital;
(b) the market-depressing effect of the frequent news of public house closures;
(c) the effect of the smoking ban; and
(d) the availability on the market of free houses, from which the tenant could expect
to make a much greater profit because of the possibility of buying beer on the
open market and not at the nominated supplier's prices.
INCLUSIVE TECHNOLOGY V. WILLIAMSON
A landlord and tenant case. The landlord obtained possession of a property on the
ground that he had intended to refurbish the property. Following possession the landlord
changed his mind. Issues also revolved around whether the landlord had concealed or
misrepresented the facts to the tenant, and whether compensation was payable.
Legal Update is compiled by Peter Brown, Professor of Property Taxation with Liverpool John Moores University, and consultant with Legat Owen, Chartered Surveyors, Chester.
24 | Member news/legal update
Member news
Chartered surveyor Peter Robinson is
pictured recently, celebrating fifty years
of Lichfield-based George Robinson and
Partners…..in the very same room where
his late father George had started the
practice – the dining room of his home.
Peter’s mother Kate, now 92, tells the
tale of ‘evicting’ father and son simply
because, she says, “I just needed my
dining room back!” Peter returned home
from working in London with Hillier Parker
May and Rowden following his father’s
death in 1970, and has operated from the
new premises in Bore Street, Lichfield,
since that day. Staff old and new turned
up to join in the celebrations. █
Editor’s Note – if you’ve got a tale to tell, or you are celebrating something special, contact the editorial team, and let us tell your IRRV valuer colleagues.
www.irrv.net | March 2010 | VALUER
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Legal update
Rating in Ireland | 25
This first part of this paper discusses public policy relating to
rates on property.
Taxation of propertyIn common with other assets, real property may be subject to
taxation when bought, sold or inherited, the principal taxes being
stamp duty, capital gains tax and capital acquisitions tax. Each is
levied by, and payable to, central government (the Exchequer).
Such taxes have been a major feature of the fiscal regime in Ireland
in terms of revenue yield and market regulation. For example,
property taxation was a key element in the Bacon Reports on the
housing market in 19981, 19992 and 20003. Stamp duty was deemed
to be a major influence on house prices and consequently was
varied from time to time to boost or modify demand, notably in
19984, 20005 and 20076.
RatesRates, which have operated from the enactment of the Poor
Relief (Ireland) Act 18387, are a tax on the ownership or occupation
of real property, both domestic and commercial. They are levied
by, and payable to, local authorities. Prior to 1969, such property
was also subject to tax under the income tax code – Schedule A
in respect of ownership and Schedule B in respect of occupation.
The imputed income was based on the rateable value (essentially
the estimated rental value). These taxes were abolished in 19698 in
response to taxpayer agitation without any appraisal of the merits
of property taxes per se. In the words of the Commission on Taxation
(1982), “the abolition of the tax on notional income from owner-
occupation was not justified on grounds of principle, but rather was
due to the fact that it was a convenient and cheap method of giving
tax relief”9.
Over the past fifty years, public policy has favoured a
reduction and eventually the abolition of rates on domestic
property. Liability for such rates ceased as from January 1978 in
fulfilment of a commitment in the Fianna Fail election manifesto of
197710. When moving the second stage of the Local Government
(Financial Provisions) Bill 1978 in Dáil Éireann, the Minister for Local
Government, Sylvester Barrett, explained: “A major undertaking of
the government’s pre-election manifesto was the commitment that,
from January 1978, rates would be abolished on domestic property,
the domestic part of mixed property, secondary schools, bona fide
community halls and on farm buildings which were not previously
exempted from rates”11. This legislation in effect diverted the rates
liability to the Department of Local Government, which was obliged
to recoup the entire loss in rates revenue to each local authority by
way of a rate support grant12.
The Act also provided for a 25 per cent rebate on the rates
liability for 197713. The grant provision was modified in the
Local Government (Financial Provisions) (No.2) Act 1983 which
provided for a recoupment not exceeding the rates income lost14.
Financing local government – the rating systemValuer continues its focus across the Irish Sea with a landmark paper from Tom O’Connor, which tracks progress south of the border, identifying public policy and legislation relating to rating in the Republic of Ireland. This is the first of a two-part series – the final part will appear in June Valuer
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In other words, the Minister was no longer obliged to allow for
full compensation in computing the rate support grant. The grant
was later subsumed in the Local Government Fund created by the
Local Government Act 1998, a fund comprising two elements, an
Exchequer contribution increasing each year in line with inflation15
and the annual receipts from motor taxation16. As from 2009 the
Exchequer grant is no longer specifically related to the rate of
inflation. It is determined in negotiations between the Ministers for
the Environment and Finance16a.
Residential property taxIn 1983 the Fine Gael/Labour coalition government took a
modest step towards reversing the favourable tax regime for
domestic property by introducing a residential property tax (RPT)
on high-priced houses. RPT was based on market values, applied to
the ‘excess’ value of the house (above a prescribed threshold), and
was income-related17. It was payable only if the household income
exceeded a prescribed exemption limit. For 1983/84 the value
threshold was £65,000, the income exemption limit was £20,000 per
annum with reliefs for family circumstances and marginal relief for
those whose income was only slightly above £20,000. The tax rate
was 1.5% on the ‘excess’ value. The tax continued until 1997 subject
to adjustments in the meantime in the valuation threshold, the
income exemption limit and the tax rate. However the tax gave rise
to constant agitation, with emotional warnings that, by gradually
reducing the valuation threshold, a future government would use
the tax as a means of reintroducing ‘rates by the back door’. The
issue became highly politicised leading to the abolition of the tax in
the Finance Act 199718.
Agricultural landThere was another breach in the rates base in 1984 when the
Courts handed down a decision affecting rates on agricultural
land. Traditionally, farmers got substantial relief from such rates
through the medium of the Agricultural Grant, in effect a rates
subsidy dating from 1899. But they continued to protest against
paying any rates until eventually a farming group from Wexford
successfully mounted a legal challenge to the validity of a rating
system which was virtually unchanged since 1852. The group were
members of the Irish Farmers’ Association and known as the ‘PLV
Action Committee’. Mr. Justice Barrington in the High Court19 held
that the rateable valuations of the plaintiffs’ lands as made pursuant
to section 11 of the Valuation (Ireland) Act 1852 were “inconsistent
with the provisions of the Constitution and invalid and inequitable
as a basis for the assessment and levying of any County rate by the
second named defendant” (Wexford County Council). The basis for
levying agricultural rates was unconstitutional, a view which was
endorsed by the Supreme Court on appeal.
Delivering the judgement of the Supreme Court20, Chief
Justice O’Higgins said, “In continuing by means of s.11 of the Local
Government Act 1946 the same system without revision or review
the State again…failed to protect the property rights of those
adversely affected by the system from further unjust attack. In the
assessment of a tax such as a county rate reasonable uniformity
of valuation appears essential to justice”. The continued use of
the 1852 valuations as a basis for agricultural rates was, he said,
“an unjust attack on the property rights of those who like the
plaintiffs found themselves with poor land paying more than their
neighbours with better land. This marked the end of agricultural
rates. The Valuation Act 1986 formally excluded land developed for
agriculture, horticulture, forestry or sport from valuation for rating
purposes21. Commercial property thus became the sole, though a
very important, survivor in the rating system.
Farm taxIn yet another attempt to compensate for a seepage in the tax
base, the Fine Gael/Labour coalition government introduced a tax
on agricultural land. The Farm Tax Act 1985 provided for a flat-
rate tax per acre,
thus avoiding the
inherent difficulty
of taxing farmers
on their actual
profits. The unit for
tax purposes was
the ‘adjusted acre’22
which reflected
the productivity
of each holding as
estimated by the
office of the Farm
Tax Commissioner23.
The office was
designated the
Farm Classification
Office. The tax applied to holdings of 20 adjusted acres and over24,
the tax rate being £10 per acre25. However the tax had a short life
and an abrupt ending. It operated for one year only because the
Fianna Fáil government elected in March 1987 decided to abolish
it. In the course of his Budget speech the newly-appointed Minister
for Finance, Ray MacSharry, told Dail Éireann, “It is the view of the
government that farmers should be taxed in the same manner as
other sections of the community, that is on actual income. It has
been decided, therefore, to discontinue the farm tax from 1987
onwards and legislation to this effect will be introduced shortly”26.
Local authority revenueThe net result of various policy changes is that tax on the
ownership or occupation of property now applies to commercial
property only. Nevertheless the yield from such tax – commercial
rates – is significant, currently amounting to some 25 per cent of
local revenue (see table 1).
26 | Rating in Ireland
Successive governments in the Republic of Ireland have approached
the taxation of domestic property with trepidation . . .
. . . several reports have consistently recognised the case for a tax
on domestic property as a means of widening the tax base.
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Rating in Ireland | 27
Table 1: Local Authority Revenue, 2004 – 2008 (€m.)
2004 2005 2006 2007 2008
Government grants/
subsidies
892 954 1,108 1,056 1,272
Local Government
Fund
752 817 877 943 1,000
Goods/Services 1,168 1,185 1,279 1,475 1,403
Commercial rates 944 1,052 1,192 1,245 1,344
Total 3,756 4,008 4,456 4,719 5,019
Source: Department of the Environment, Heritage and Local Government27
Property taxes as a source of local revenue are of course
commonplace in other countries. To quote the Lyons Inquiry
in 2007, “Property taxes are widely used around the world as a
source of finance for local government, reflecting the crucial link
between residents of an area and the services that are provided
there”28. In the United Kingdom, domestic property is subject to
the Council Tax, introduced in 1993 following the abolition of the
Community Charge (poll tax) which had replaced domestic rates
in 1990. Commercial property is subject to the uniform business
rate since 1990, a rate which is set centrally but collected by local
authorities who then remit the proceeds to central government
for redistribution. The uniform business rate was not extended to
Northern Ireland. The traditional non-domestic rate remained and
still operates together with a Council Tax on domestic property.
Successive governments in the Republic of Ireland have
approached the taxation of domestic property with trepidation.
Property as such is widely recognised as an equitable and attractive
taxation target. In any developed economy the potential yield is
substantial, expected yields from year to year can be calculated
with relative ease, tax rates can be readily varied to accord with
budgetary requirements, and evasion is difficult. Several reports
have consistently recognised the case for a tax on domestic
property as a means of widening the tax base, restructuring the tax
code and/or reforming the financing of local authorities. Examples
are the Commission on Taxation (1985)29, the National Economic and
Social Council (1985)30, KPMG (1996)31, and Indecon (2005)32. Taxation
of domestic property remains a sensitive political issue, but the
current economic recession may force a revision of public policy.
In the second part of this article, I shall concentrate on the
principal legislation which relates to the valuation of rateable
property. █
Tom O’Connor is a graduate of Trinity College Dublin, and is a former Commissioner of Valuation.
References:1. An Economic Assessment of Recent House Price Developments, Report
submitted to the Minister for Housing and Urban Renewal, April 1998.
2. The Housing Market: An Economic Review and Assessment, Report
submitted to the Minister for Housing and Urban Renewal, March 1999.
3. The Housing Market in Ireland, An Economic Evaluation of Trends and
Prospects, Report submitted to the Department of the Environment and
Local Government, June 2000.
4. Finance (No. 2) Act 1998
5. Finance Act (No. 2) Act 2000.
6. (No. 2) Act 2007.
7. Review of Rating Law, Report of the Working Group, Report submitted
to the Department of Environment, Heritage and Local Government,
May 2001, p. iii.
8. Finance Act 1969.
9. Commission on Taxation, First Report, Dublin: Stationery Office, 1982, par.
10.17.
10. Fianna Fáil, Manifesto ’77, Action Plan for National Reconstruction, Dublin:
Fianna Fáil.
11. Dáil Debates, vol. 307, col. 848, 8 June 1978.
12. Local Government (Financial Provisions) Act 1978, s. 3 and s. 9.
13. Ibid: s. 4.
14. S. 9.
15. S. 4.
16. S. 5.
16a. Financial Emergency Measures in the Public Interest Act 2009, s.17.
17. Finance Act 1983, ss. 96 – 101.
18. S. 131.
19. Brennan and Others v The Attorney General and Wexford County Council,
1983 ILRM 449.
20. Brennan and Others v The Attorney General and Wexford County Council,
1984 ILRM 355.
21. Valuation Act 1986, s. 3.
22. Farm Tax Act 1985, s. 2.
23. Ibid: s.14.
24. Ibid: s. 3.
25. Ibid: s. 9.
26. Dáil Debates, vol. 371, col. 795, 31 March 1987.
27. Local Authority Budgets 2008, Dublin: Stationery Office.
28. Lyons Inquiry into Local Government, Final Report, March 2007, par. 7.8,
London: The Stationery Office.
29. Commission on Taxation, Fourth Report, Special Taxation,
Dublin: Stationery Office, May 1985.
30. National Economic and Social Council, The Financing of Local Authorities,
Dublin: Stationery Office, 1985.
31. KPMG, Financing of Local Government in Ireland, Report to the Department
of the Environment, Heritage and Local Government, 1996.
32. Indecon, Review of Local Government Financing, Report to the Department
of the Environment, Heritage and Local Government, October 2005.
VALUER | March 2010 | www.irrv.net
www.irrv.net | March 2010 | VALUER
28 | VTS update
I reported in December on the
positive steps taken by the Valuation
Tribunal for England (VTE) in establishing
a Valuation Tribunal User Group – a
stakeholder user group bringing together
representatives of the IRRV, the RICS,
the Rating Surveyors’ Association and
the Valuation Office Agency. The first
meeting of the User Group took place on
7th December 2009 and at that meeting
the VTE President shared drafts of various
practice statements for consultation. As
the Valuation Tribunal User Group will
become a very important forum in shaping
tribunal practices, current representation
has been expanded to include the
Federation of Small Businesses, billing
authorities, Citizen’s Advice Bureau and the
Confederation of Small Businesses.
While the VTE builds on its procedures,
the Valuation Tribunal Service (VTS)
continues to provide the support to
enable the Tribunal to function. The VTS
(a separate statutory non-departmental
public body established by the Local
Government Act 2003) supports the VTE by
providing:
• accommodation;
• staffing (including clerks);
• information technology;
• hearing venues;
• equipment; and
• training for VTE members.
A major component of delivering
the service we provide is the estate itself.
Therefore, the location of the offices and
their functionality are essential ingredients
to the VTS’ success and through our
strategic estates activity during 2006-09
we have made a number of beneficial
changes to improve the customer
experience. We currently operate out of
eight locations (Bolton, Preston, Doncaster,
Stafford, Werrington, Aldgate East, Witham
and Plymouth), each office processing
paperwork and cases in support of
hearings. We are currently looking at the
way in which work is distributed to each
of these offices so that we may better
support the arrangements which the VTE
President has put in place to deploy his
four Vice-Presidents. The VTS administered
the receipt of just over 100,000 appeals last
year; as at 31 December 2009 there were
583 members of the VTE, supported by 100
VTS staff.
One of our strategic aims is to support
the VTE by ensuring that our premises:
• are well located to serve the
geographical areas of England;
• are of adequate size and
quality;
• meet health and safety needs;
• meet needs for access for the public
wherever reasonably possible;
• remain affordable;
• provide a level of flexibility to cope
with any workload changes that
may arise.
Office closures have not disadvantaged
local hearings. Whilst our offices
incorporate a tribunal hearing room,
external accommodation (about 200
venues throughout England) is used
to deliver a local service to appellants.
Our mantra is that hearings should be
conducted at ‘suitable’ locations and in
‘suitable’ premises, and we have developed
criteria that explain what we mean by
‘suitable’ in the context of a judicial
hearing:
• hearing venues located within a
reasonable travel time for tribunal
users;
• accessible venues which meet the
needs of all attendees;
• adequate space at venues for
hearings, privacy, preparation and
waiting;
• providing for successful
proceedings to take place;
• ensuring our independence from
the bodies whose decision is being
appealed;
• meeting health and safety needs;
• providing value for money.
In optimising our estate we have been
mindful that office closures could lead to
the loss of experienced and professionally
qualified tribunal-taking staff. To ensure
that we continue to retain experience and
skilled staff, we have introduced remote
and mobile working (home-working) that
enables retention of these staff to provide
greater flexibility in supporting members
at hearings. There are currently ten
individuals who are now home-based.
Since 2006 the VTS has operated with
a four-region structure (North, Central, East
and South) to support the administrative
management of the previous 56 local
valuation tribunals. This support
arrangement has recently changed. The
four VTS regions have been abolished
and the post of Operations Manager was
introduced to bring a more cohesive
structure to the administrative support in
line with a single Valuation Tribunal. On 4
January 2010 Lee Anderson BSc (Hon) IRRV
(Hons) was appointed Operations Manager
with responsibility for:
• all operational staff (administrative
and professional);
• financial resources affecting
offices;
• providing greater consistency of
practice; and
• successful delivery of performance
across all offices.
The change around our estate and
our workforce has inevitably brought
significant benefit both operationally and
financially to the VTS and VTE, and we
have started to translate these benefits
into improved service to the public. Our
primary strategic aims continue to be (a)
to provide good service to our public,
and (b) to make effective use of public
funds. We will therefore continue to
reinforce our ongoing commitment to
good service and good value as we move
into the 2010-11 financial year. █
Tony Masella MRICS MCIOB IRRV (Hons) AFA F.Inst. AM is the Chief Executive of the Valuation Tribunal Service. Contact him on [email protected]
As the new tribunal arrangements bed in, Tony Masella shares the latest operational issues with Valuer readers and points to an improved service all round
Fisherʼs findings | 29
The Rating Diploma lunch on 27 November 2009 in the RAF
Club Piccadilly was as usual a very pleasant occasion. This followed
the Diploma Holders’ packed September conference on “Valuation
in recession – again”, with focus on the revaluation 2010. Rating
Diploma Holders regularly contribute to “Valuer” and there are
more articles in store for 2010. The 2010 Rating Diploma Holders’
Chairman is Steven Turton.
The VOA’s David Tretton is presented with the Rating Diploma Holders’ Honorary Membership by Chairman Allen Evans – photo courtesy of Richard Guy.
IRRV London and Home Counties Association and the Rating Surveyors Association (RSA) held a packed joint meeting in January
at the offices of Lawyers Herbert Smith, who kindly provided a
reception after the meeting. RSA President Mark Higgin introduced
excellent presentations from Jon Bestow, VTS Registrar, Gordon
Heath, rating consultant, and Frances Edwards and Martin Dawbney
of Herbert Smith. Copies of some of the handouts available are
available on the IRRV London and Home Counties’ Association
website.
The RSA is a professional organisation representing the interests
of experienced chartered surveyors who specialise in the field of
business rates. Go to www.ratingsurveyorsassociation.org.uk.
The London Association was founded in 1909 and now has over
350 members drawn from private practice, corporate bodies, the
Valuation Office Agency and local authorities.
Coming soon…….. IRRV East Anglia Association 24 March 2010 – the new
Valuation Tribunal Service: 2pm at South Norfolk Council’s offices.
See the Association’s website for more details.
The Valuation Tribunal England held the first Valuation Tribunal
User Group Meeting in December 2009, with representatives from
the IRRV, VOA, RSA and RICS, with a further meeting scheduled
for February 2010. Check out the useful ‘jargon buster’ on the Valuation Tribunal web site http://www.valuationtribunal.gov.uk/JargonBuster.aspx.
The February 2010 IRRV Benefits Conference included debate
on the proposed revision of the Local Housing Allowance, including
contributions from the VOA Rent Service.
The Compulsory Purchase Association held their Annual
Dinner on 10th February, with Sir Michael Pitt, Chair of the
Infrastructure Planning Commission, as guest speaker.
The European Group of Valuers’ Associations (TEGoVA) – the first UK Recognised European Valuers (REV), Geoff Fisher and
Roger Messenger, will be attending the Spring meeting of TEGoVA
in Paris. The European Valuation Standards EVS09 have now been
translated into Hungarian, Romanian and Spanish. Go to www.tegova.org.
2010 rateable values for rating. The transitional relief limits are
as follows – large hereditaments £25,500 (London), £18,000 (outside
London). The Small Business Rate Relief Threshold will be £18,000,
and the 2010/11 Exemption Limit for Empty Rates £18,000.
2010 rateable values for compensation. Rateable Value
£29,200 is the 2005 List limit for Blight Notices (owner occupied
dwellings and farms); Sec.149(3)(a) Town and Country Planning Act
1990; for Part 1 LCA73 Business Premises Claims; and for LCA73
eligibility for claiming CPO compensation for total extinguishment if
the business proprietor is aged 60 or over. A Statutory Instrument is
awaited as to the 2010 List rateable value limit. Bearing in mind that
the total draft 2010 List RV shows an approximate 20% increase over
the 2005 List – the new RV limit is likely to be of the order of £35,000.
Businesses affected by compulsory purchase are suffering a
“triple whammy” with falls in market values, limited property on the
market for relocation or reinvestment of capital, and a nil interest
rate for Statutory Interest on Compensation (from April 2009). See
http://www.strettons.co.uk/Uploads/PDF/Briefing%20Notes%20No%2054%20.pdf for further details.
Remember ‘Doing a Haslemere’ in renovation? Sadly the ‘main
man’, David Pickford FRICS died recently, and a thanksgiving service
is being held on 3 March at St George’s Hanover Square – organised
by Christians in Property – www.christiansinproperty.org. The Commonwealth Heads of Valuation Agencies (CHOVA)
are holding their 2010 Conference in Cambridge, England, from 1st
to 4th.August 2010. It will be hosted by the VOA, celebrating their
centenary, and the IRRV intend organising some related events. See
http://chova2010.com/about-CHOVA.html. The RICS/IRRV/RSA Rating Consultancy Code 3rd Edition is
soon to be published. █
Fisher’s Findings are prepared by Institute President Geoff Fisher, who is professional consultant at Strettons Chartered Surveyors –[email protected].
President Fisher’s Findings
VALUER | March 2010 | www.irrv.net
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30 | Flotsam
I have seen the VOA edging away from its former position of neutrality.
Your Editor, taking a break from his
sunny Spanish home, found me on the
beach at Margate, wandering the tideline,
seeing what the sea of valuation had
thrown up on to the beach. I had one or
two pieces with me, and so he invited
me to write about them, here. Being, like
the Fool in Shakespeare’s “King Lear”: “…
a snapper-up of ill-considered trifles”,
I welcomed the opportunity to lay my
discoveries before you and to offer you my
thoughts, in the hope that such thoughts
might, in turn, provoke contributions to
these pages from others, whether in reply
or otherwise taking a discussion further.
I had just spotted an article by Gordon
Heath in the December 2009 edition of
Valuer, entitled: “Avoidance or Evasion?”.
Far be it from me to differ from so august
a personage as Gordon; but I am afraid
that I believe that his opening statement
is simply wrong: “The VOA is under a duty
to maximise the rating list…” No it isn’t – it
is under a duty to make and maintain the
list in correct form. This was stated clearly
in the General Rate Act 1967. In the Local
Government Finance Act 1988 it is restated
at s41(1). The Ladies Hosiery case is still with
us, holding that correctness is not to be
sacrificed to uniformity.
Before LGFA, the then VO did not
have an ethical problem – he was a
neutral officer, and held the ring between
ratepayers and rating authorities, which
had an active role in rating valuation.
Cases could only be settled by tripartite
agreement, and appeals were frequently
three-handed, also. LGFA booted rating
authorities out of valuation and made
them active ratepayers instead. So
between whom was the VO to be neutral?
Difficult.
Then along came Agency status, and
the VO gained what private practitioners
had had for years – a client. Where did that
place the VO, then? In a cleft stick, as far
as I can see. On the one side he has the
statutory duty laid down by s41(1); but on
the other he has his duty as a professional
person to his client, now known as CLG.
The statutory duty requires him to do what
he has always done: his client, though,
the government, as Gordon puts it: ”…. is
desperate to raise more revenue”.
The private practitioner has a duty to
his client to do for him the best that he can.
This is tempered by his professional duty
to act in an ethical manner throughout.
Private practitioners have numbers of
clients.
By contrast, VOA has a statutory duty
and the same duties to its clients and
ethical duties as their colleagues. And it has
only one client, which pays it and therefore
feels that it can call the shots.
I have seen the VOA edging away from
its former position of neutrality. Have
you noticed how the answer for which a
VO contends is so frequently that which
produces the highest possible bill (when
transitional paths are taken into account)?
One recent classic is the refusal by local
offices to delete from the lists in their
care, premises which have become empty,
when such properties would have been
deleted – until the present empty rating
provisions came into force. Result? Unless
the ratepayer fights – more revenue.
Then we have the increased praying
in aid of the Rating (Valuation) Act 1999,
and its meaning. We know that the Bill was
a disaster, and that the discovery came
too late to change it, because that would
have meant taking it back to the Commons
before returning to the Lords. So instead
there was Lady Farrington’s speech, and
the Practice Statement prepared and
agreed by the professional bodies and
the VOA, a copy of which was deposited
in the House of Lords’ library. Job done?
One might have thought so, until the
VOA issued a new internal and unilateral
Practice Statement in 2008, which ignores
the joint statement, and reinterprets the
Act so as to yield – more revenue.
And CLG has its own Valuation Policy
Unit. Why? Isn’t valuation the job of the
Agency? Does this client keep a dog and
tell it how to bark?
It seems to me that VOA, acting under
extreme client pressure, has an actual or a
potential conflict of interest on its hands.
This piece should not be read as
“having a go” at any individual or group:
but it seems to me that answers are
required, in the public interest. I am sure
that the Editor would appreciate answers
and comments from all with an interest. █
Flotsam.
““Valuer introduces a new comment column, brought to you by an informed observer
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Valuer focuses on the appointment of the UK’s first Pan-European valuers
IRRV Publications
The NDR Non-Domestic Rating 2005 Valuation List Transitional Arrangements Manual
2009 UpdateAUTHOR: Anne Firth
This essential update to the first (2007) edition of the acclaimed publication incorporates all the relevant legislation effective after it was published, together with miscellaneous amendments/enhancements, including:
> Small business rate relief amended qualification criteria from 1 April 2009;
> Empty property rate liability/exemptions before and after 1 April 2008;
> Section 44A part occupation relief calculation until/from 2008/09;
> Charity zero empty property rate from 1 April 2008;
> List deletion overpayment interest entitlement and calculation;
> Updated parameter charts, legislation summary and glossary.
It also includes an electronic PDF version of the complete 2009 edition.
To order online please visit our website below or send an email to [email protected]
www.irrv.net/publications.asp
IRRV President Geoff Fisher FRICS IRRV (Hons) of Strettons, and TEGoVA Chairman
and Institute Junior Vice President Roger Messenger FRICS IRRV (Hons) of Wilks Head &
Eve have been accredited as the first Recognised European Valuers in the UK.
The European Group of Valuers Associations (TEGoVA) administers the Recognised
European Valuer scheme and use of the designatory letters REV™. The badge provides
a trans-European assurance to investors of all types by setting a transparent and
demanding standard of ability and experience. TEGoVA has appointed the IRRV as the
awarding body for accreditation of the scheme in the UK.
“The international nature of real estate markets, particularly at this time of
economic uncertainty, underscores the need for co-operation between valuers to
ensure they possess the awareness and knowledge to give accurate and informed
advice to clients across Europe,” says Tony Prior FRICS IRRV (Hons), Chairman of
TEGoVAs Recognition Committee.
“Real estate valuation will continue to require specialist knowledge of local
conditions, but transnational investors will increasingly require a means of ensuring
that the ‘local’ valuer is part of a wider recognised standard that they can rely on in
making transnational investments. The Recognised European Valuer Scheme and
use of the designatory letters REV™ provides such a pan-European assurance to
investors of all types by setting a transparent and demanding standard of ability and
experience.”
Already 413 members of Valuer Associations across Europe have qualified as
Recognised European Valuers. To qualify surveyors must show evidence of relevant
professional experience, life-long learning and adherence to a code of ethics.
Benjamin Tobin, Chairman of Strettons Chartered Surveyors, adds: “We are thrilled
that Geoff Fisher is the first in the UK to achieve this status. It marks the culmination
of a career at the highest level in Public Service and, more recently, in private practice
dealing with the Olympics, the UK’s largest CPO and regeneration scheme. We are now
encouraging other members of staff to qualify.”
Wilks Head and Eve Senior Partner, Iain Dewar says, “Roger Messenger is a highly
regarded surveyor and valuer over very many years. His REV appointment underlines
our commitment to quality advice to clients, which brings repeat business consistently.
Other WHE Partners are now seeking this status.” █
Geoff Fisher Roger Messenger
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