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Practice Note 2 : Appendix 1 - The Valuation of Public Houses for Council Tax (England 1993 list)

1.0 Introduction

The open market value of public houses is determined primarily by reference to trade, which itself will be dependent partly on location. Unlike most other types of property, where there will be a physical measure of comparison (e.g. m2 ITZA for shops), the value of a public house cannot be determined solely by reference to its size and accommodation.

In order that the band ascribed to any domestic use fully reflects the fact that it is a portion of the value of a larger hereditament, which is normally valued having regard to its trading potential, it is necessary to consider the actual/notional accommodation, trade and location.

As part of the banding exercise Listing Officers prepared tables in consultation with Regional Licensed Property Valuers (RLPVs). These comprised a minimum, a maximum and a trading band. The manner in which these tables were constructed and the significance of the bands produced are explained in paragraph 2. The application of the tables is explained in paragraph 3.

2.0 Construction of Tables

2.1 Minimum Band

The living accommodation in a public house will always have a value to a prospective purchaser, either as somewhere to live or in order to provide accommodation for a manager. Irrespective of the level of trade, this value will not fall below the lowest value which attaches to similar, alternative accommodation which could be used satisfactorily to fulfil this purpose. This level of value was called the "minimum band".

The determination of the minimum band was particularly relevant where a property was situated in a pocket of high values, e.g. Chelsea; a Georgian terrace in a Spa Town; overlooking a picturesque harbour.

The minimum band was determined at the lowest value of alternative domestic property (after making all appropriate adjustments as described in part 6 of PN2 above) which was,

a) of a similar size and quality;

b) situated within the locality of the subject property (as defined in CTM:PN1:4.4) and its adjoining localities. These will generally be within the normal commuting distance that a licensee would be prepared to travel; and

c) in a locality where a prospective purchaser of the public house would be prepared to live.

For example, the domestic use of a public house situated in a city centre location comprises living accommodation on two floors. Values of flats and maisonettes of similar size and which would be acceptable to prospective purchasers ranged from £50,000 to £80,000 as at the AVD of 1 April 1991. Accordingly the value of the domestic use of the public house would not fall below:

£50,000
less Adjustments
(for disadvantages) say £ 5,000
£45,000 Band B
(in England)
(ie. The MINIMUM BAND)

It should be noted that where the subject property was in a locality which had a lower level of values than adjoining localities, the values of the actual locality were used to determine the minimum band.

2.2 Maximum Band

The maximum band reflected the value (after making all appropriate adjustments as described in part 6 of PN2) which attached to the domestic property of the actual public house in its immediate environment.

If, in the example 2 above, the value of flats and maisonettes of a similar size and quality in the immediate vicinity was £80,000 as at the AVD, the value of the living accommodation would not exceed:

£80,000
less Adjustments £10,000
(for disadvantages) say £70,000 Band D
(in England)
(ie. The MAXIMUM BAND)

In rural areas and small towns where only one value significant location was applicable the minimum and maximum bands were the same and this band was adopted.

2.3 Trading Band

In cases where location determined that there was a difference between the minimum and maximum bands it was necessary to consider the trading potential of the public house when ascribing a band to domestic use.

The trading band was determined having regard to the capital value of the public house. The more profitable the business was in actual terms the more a potential purchaser would have been able to pay for the domestic use.

RLPVs analysed market evidence and rateable values of all public houses that were sold during the year preceding and the year following the AVD. From their analysis ranges of likely capital value, of the entirety were estimated, by reference to the 1990 non-domestic RVs. An indication of the band which the trade of a public house was likely to be able to support in England where there was a single unit of domestic use (ie. where disaggregation does not apply) is shown below:

1990 Rateable Value Range

Likely Capital Value Range

"Trading" Band

Up to £6000

Up to £200,000

A

£6001 - £9000

£150,000 - £300,000

B

£9001 - £12,500

£250,000 - £450,000

C

£12,501 - £17,500

£400,000 - £600,000

D

£17,501 - £25,000

£500,000 - £800,000

E

Over £25,000

Over £750,000

F

3. Application of Tables - Band to be adopted

In instances where the minimum and maximum bands are the same the subject band letter will represent the value attributable to domestic use.

Where the minimum and maximum bands differ, the value to be ascribed will never fall below the minimum band. Where the trade justifies a higher band than the minimum this will be adopted, subject to not exceeding the maximum band, except in those instances where the potential purchaser is likely to include persons whose overwhelming motivation is to own the property, and its situation and domestic use are paramount to the business, e.g. a public house in a national park or a sought-after picturesque village.

For example, if the domestic use of the public house detailed in 2.1 above has a minimum band of B and a maximum band of D, the band to be adopted would be as follows:

Capital Value

Trading Band

Band Adopted

Remarks

(a) £120,000

A

B

Cannot fall below minimum band

(b) £325,000

C

C

Trading band falls between minimum/maximum bands

(c) £600,000

E

D

Cannot exceed maximum band

NB. It is assumed in (a) and (b) that potential purchasers will not include individuals who are primarily motivated by the domestic use and situation of the property as opposed to the business as a whole.

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