Valuation Office Agency
1.1
The definition of Rateable Value is set out in Schedule 6, paragraph 2(1) of the Local Government Finance Act 1988 (as amended by the Rating (Valuation) Act 1999):
2 (1) The rateable value of a non-domestic hereditament none of which consists of domestic property and none of which is exempt from local non-domestic rating, shall be taken to be an amount equal to the rent at which it is estimated the hereditament might reasonably be expected to let from year to year on these three assumptions
(a) the first assumption is that the tenancy begins on the day by reference to which the determination is to be made;
(b) the second assumption is that immediately before the tenancy begins the hereditament is in a state of reasonable repair, but excluding from this assumption any repairs which a reasonable landlord would consider uneconomic;
(c) the third assumption is that the tenant undertakes to pay all usual tenants rates and taxes and to bear the cost of the repairs and insurance and the other expenses (if any) necessary to maintain the hereditament in a state to command the rent mentioned above.
(8A) For the purposes of this paragraph the state of repair of a hereditament at any time relevant for the purposes of a list shall be assumed to be the state of repair in which, under sub-paragraph (1) above, it is assumed to be immediately before the assumed tenancy begins.
1.2
This is a deliberately involved definition and over the years, since the definition became law, the courts have considered the wording carefully. A number of these elements are covered in detail in other sections of the Rating Manual but important points to consider regarding the definition are set out below.
1.3
This definition only covers non-domestic property. Special provision is made at paragraph 2 (1A) of Schedule 6 for situations where the hereditament comprises both domestic and non-domestic elements i.e. a composite property. For more information of the domestic /non-domestic borderline please see Section 2, Part 5.
1.4
The principle is based on a notional annual rent adopting certain assumptions. This rent is assumed to have been agreed between a reasonable landlord and reasonable tenant and to begin on the antecedent valuation date (AVD). It is not necessarily the actual rent on the subject property since this may be based on different terms to the definition and at a different date. In addition, the rent on the subject property may be out of line with comparable properties. Despite this, it is important evidence since it is based on the actual property with the inherent advantages and disadvantages of that individual property, see Rating Manual, Section 6, [part 9A] (https://www.gov.uk/guidance/rating-manual-section-6-chhallenges-to-the-rating-list/part-9-inspections-and-miscellaneous-administrative-matters).
1.5
The statutory definition applies to all types of property, whether rented or not including properties that are never actually let in reality. This ensures a uniformity of approach to all non-domestic property. Where there is little or no rental evidence the notional rental value may have to be calculated using different methods of valuation (see Section 4: Valuation Methods).
1.6
The words from year to year in the definition above means a yearly tenancy. This does not mean that the tenancy ends after a year but rather the courts have accepted that the tenant has a reasonable expectation of the tenancy continuing for more than a year. This expectation may differ depending on the circumstances of the case. In the Court of Appeal decision in Humber Ltd v Jones (VO)[1960] 53 R&IT 293 the ratepayers argued for a reduction in rateable value since an annual tenancy was not reasonable for a car manufacturer where it took 5 years to set up and reach full capacity on a new production line. Here the tenant had a 21-year lease renewed for another 21 years and break clauses for the tenant at 7 and 14 years. In this decision the court confirmed that the hypothetical tenancy was not to be seen as restricted to only a year but to be of a similar length to that expected for the type of property being valued.
1.7
There may be situations where the tenant cannot or will not remain in occupation for a year, for example where redevelopment is anticipated within the forthcoming year, but the assumption in the legislation is that the tenancy will continue. If there is a change in any of the mentioned matters, see paragraph 4.3 below, then the valuation should be reviewed to see whether it requires amendment.