GovWire

1. MARKET APPRAISAL

1.1 It is apparent since the last AVD (particularly in areas severely impacted by the recession) that Shopping Centre operators have tried to maximise income by allowing numerous concessions and temporary traders to operate within shopping malls. Such let outs include sites of sales pitches/ retail merchandising units, sites of vending machines, photo booths and childrens rides.

1.2 Residual malls are generally found within covered shopping centres, where pedestrian areas are within the control of centre operators. This class does not cover circulation space forming part of the public highway.

1.3 Hereditaments are restricted to mall space and areas used for short term lettings only and will not include other items such as admin offices or car parking.

1.4 Generally where a centre is performing well the number of other occupations within the mall space will be limited to a restricted number within set locations. In effect, a conscious decision by centre operators to ensure they do not adversely impact future rental levels of permanent retail units. The converse is true however in less well performing centres, often with significant vacancy rates, in that centre operators will actively seek income from other means in the knowledge that rental levels of permanent retails are unlikely to depreciate further.

1.5 Due to economic uncertainty, particularly in areas hit by the recession, small independent retailers appear more willing to trade on a flexible basis rather to commit to formal long-term agreements.

1.6 Shopping centre malls no longer simply provide access to permanent retail units, they now strive to offer a retail experience in their own right. Typically providing complementary facilities for visitors including coffee shops, entertainment and on the move refreshments.

1.7 Increasingly, available space within shopping malls is utilised by short term sales pitches, promotional lettings and sites of photo booths, vending machines, and childrens rides. Income from such let outs has increased since the last Antecedent Valuation Date, with mall income within a centre commonly generated from a combination of fixed license fees and commission percentages only.

1.8 It is commonplace for operators of electronic machines to enter into agreements covering numerous sites within any single centre and move attractions to different locations on a regular basis to maintain public interest.

1.9 Advertising space comprising Digital and Paper is often let to a third party and in such circumstances the advert hereditaments will subject to a separate assessment. However where the advertising space both digital and paper is run by the Centre then the income generated from the digital and paper adverts will be part of the residual mall income and should accordingly form part of the residual mall assessment.

2. CHANGES SINCE LAST PRACTICE NOTE

2.1 The market knowledge section has been updated to reflect the state of the market as at AVD. Whilst base rates are expected to change, there are no substantive differences to the valuation scheme.

2.2 Whilst generally in decline, such let outs are still clearly of benefit to centre operators who receive income from combined licence and commission fees.

2.3 Transient let outs should therefore be assessed and described within Rating Lists as residual mall assessments. Kiosks or Retail Merchandising Units let out and occupied on a permanent basis, should be treated as separate hereditaments and should not form part of the residual mall hereditament.

2.4 The hereditament is identified as public areas of the shopping mall connected by walkways, stairwells, and escalators. With the assessment reflecting the rent which a centre operator would pay in return for the annual income generated from all temporary let outs. It will however exclude areas identified as other separate assessments.

2.5 Care should be taken that this area can be ring fenced, as areas outside the identifiable curtilage (for example let outs within non-adjacent car parks) should not be included within the mall assessment but should be reconstituted from the appropriate host assessment.

2.6 It is envisaged the rateable occupier of the residual mall will be the centre operator.

Data capture

2.7 Special Category Code 710 should be used for residual mall assessments with suffix G.

2.8 Rating list descriptions should read residual mall assessment

2.9 To achieve national conformity the following codes should be adopted -

RMUA to be used for large shopping centres with a high proportion of short term/ transient lettings. These shopping centres will often have in excess of 100 units within them.

RMUB - to be used for large shopping centres with a low proportion of short term/ transient lettings. These shopping centres will often have in excess of 100 units within them.

RMUC to be used for medium sized shopping centres with a high intensity of short term/ transient lettings. These shopping centres will often have up to 100 units within them.

RMUD - to be used for medium sized shopping centres with a low proportion of short term/ transient lettings. These shopping centres will often have up to 100 units within them.

RMUE - to be used for smaller shopping centres with high numbers of short-term or transient lettings. These shopping centres will often have less than 50 shop units.

RMUF to be used for smaller shopping centres with low numbers of short-term or transient lettings. These shopping centres will often have less than 50 shop units.

Smaller arcades, which contain a small number of units, and form a cut through, are likely to have very limited residual mall area and are unlikely to have an assessment.

The values to be adopted for each sublocation code are as follows:

RMUA = 21,000

RMUB = 15,000

RMUC = 15,000

RMUD = 6,000

RMUE = 4,500

RMUF = 3,000

Accommodation Use Codes

2.10 Data should be captured on RSA using an Accommodation Use Code of SOV

For example, to achieve a Rateable Value of 15,0001 x SOV at 15,000 (unit price on address matrix) = RV 15,000

3. RATEPAYER DISCUSSIONS

3.1 To date, no discussions have been held with the industry.

4. VALUATION SCHEME

4.1 There is no agreed national scheme for this class. The valuation approach and percentages applied have however been accepted as part of the appeal discussion process.

4.2 Assessment of the residual mall is basically a judgement of what an operator would pay in rent for the expectation of a certain level of annual receipts received from the income generating capacity of the mall.

4.3 The starting point is to ascertain the level of receipts which could reasonably be expected as at the Antecedent Valuation Date. It is recommended three previous years accounts prior to the AVD are sought. Where major fluctuations between years are identified, clarification should be sought as to why this has happened. This may reflect significant differences in the number of let outs, MCCs impacting on the centre or a change of operators policy moving temporary lets to permanent and vice versa.

4.4 It is vital that income from any permanent lettings (which will be hereditaments in their own right) are stripped out of this figure to prevent double counting.

4.5 Once the maintainable level of income is established, a percentage of this figure should be adopted to arrive at the notional rent/ Rateable Value. The following ranges have been formulated having regard to the management costs involved in generating that level of income. Where appropriate, figures should be interpolated.