Part 3: Practice note 1: 2023 Revaluation 2023: The contractor's basis: Age and obsolescence allowances
Practice note 1: 2023 from section 4 part 3 of the Rating Manual - the contractors basis age and obsolescence allowances.
1. Allowances – General
1.1 This guidance relates to age and obsolescence allowances applied at Stage 2 of the contractor’s basis of valuation. If specific guidance on the application of obsolescence is given within individual class 2023 Practice Notes then it should be followed.
1.2 Historically the valuation approach at Stage 2 of the contractor’s basis had regard to a scale of allowances for age related obsolescence that originated from the decision in Monsanto v Farris (VO) (1998) RA 217. In the more recent Upper Tribunal decision, Stephen G Hughes (VO) and York Museums and Gallery Trust [2017] RA/20/2015, the member in an obiter comment questioned the correctness of applying the “Monsanto allowances” to buildings other than industrial (para 187):
1.3 “We do not criticise the widespread adoption of the Monsanto allowances in contractor’s basis settlements relating to industrial buildings, but their use in industrial settlements lends them no additional credibility or relevance as a tool for valuing other types of building.”
1.4 Consequently, for the 2017 rating list the VOA and leading rating agents explored and agreed a scale of allowances for non-industrial type buildings based on a Depreciated Replacement Cost (DRC) approach more commonly found in asset valuations. Re-based for the 2023 rating list this forms a single age-related scale and should be applied to non-industrial type buildings. Further guidance notes on the rationale and assumptions supporting this ‘Civic’ scale can be found below.
1.5 For industrial type buildings the scale of allowances commonly referred to as “the Monsanto scale” (derived from the approach determined in Monsanto v Farris (VO) 1998 RA 217) continue to be applicable.
2.0 Civic Scale (Non-Industrial type buildings)
2.1 This scale applies to buildings within educational, healthcare, emergency and civic building classes. The allowances are to be applied on a building-by-building basis rather than by reference to the mode or category of occupation of the hereditament as a whole. Consequently, industrial-type buildings within a civic hereditament should continue to attract the industrial scale.
2.2 The scale represents the combined age-related physical depreciation along with functional obsolescence and technological redundancy typically exhibited by buildings of the relevant age. These allowances should be adopted in the majority of cases and only varied in exceptional circumstances. In such circumstances contact the National Valuation Unit (NVU) via the prescribed channels.
2.3 In respect of physical depreciation, the civic scale is intended to reflect normal wear and tear and/or deterioration due to the age of the building. The scale assumes an average degree of cyclical refurbishment work will have been undertaken, to include whole or partial renewal of building sub-components. Most particularly this relates to mechanical and electrical services and internal fit-out, but also includes periodic renewal of roof coverings and windows.
2.4 It follows from the above that no adjustment away from the scale is required in the majority of cases where older buildings have been subject to modernisation and refurbishment works, as these are explicitly assumed to have occurred. An exception to this would be for a building taken back to shell and reconstructed with significant renewal of structural elements, where an abatement of age-related physical obsolescence may be required.
2.5 An example of a building requiring an abatement of the allowances provided by the scale (due to the mitigation of physical depreciation) would be where a major renovation has occurred utilising the original building foundations and frame (including upper floors) but with comprehensive replacement of the external envelope (walls, windows), a complete internal refit and wholescale replacement of mechanical and electrical services.
2.6 Conversely, the scale will be insufficient to reflect physical obsolescence in cases where buildings are substantially un-modernised. In such circumstances refer to the NVU via prescribed channels. In any case, the scale does not apply in instances where repair is uneconomic and thus the building falls to be valued rebus sic stantibus.
2.7 In respect of functional and technological obsolescence for buildings that remain in operational use, the scale includes adjustments to reflect functional and technological deficiencies observable in buildings (i) typical of their original period of construction; but (ii) taking account of the level of assumed cyclical refurbishment reflected in the physical depreciation element of the scale.
2.8 The type of functional and technological obsolescence factors already reflected in the scale includes the following:
- poor energy efficiency and/or environmental sustainability
- inappropriate layout inhibiting flexible and efficient space utilization
- modern health and safety, fire or building regulations that preclude or limit the original purposes of the building
- dated design practices that restrict modern usage (such as lack of/or minimal floor and ceiling voids)
- the absence of modern space heating or air conditioning systems within a building
2.9 It follows that only where buildings display specific functional deficiencies or issues of technological redundancy that are atypical for their age, consideration may be given to applying an additional allowance.
2.10 In any instance of variation from the scales in accordance with these instructions, the reasoning for this must be recorded in the valuation.
2.11 Should there be a specific challenge to this valuation approach then refer to NVU for advice.
2.12 Any stand-alone industrial-type buildings within a larger otherwise civic hereditament should continue to be subject the Monsanto scale for Stage 2 allowances. The same applies to Plant and Machinery (P and M) and Civils.
3.0 Temporary Buildings and Huts
3.1 Temporary buildings within larger civic hereditaments should attract the temporary building obsolescence scale detailed in the table below.
4.0 External Sports Facilities
4.1 External Sports facilities found within civic hereditaments and valued on the contractor’s basis should attract the external sports facilities obsolescence scale detailed in the table below.
5.0 Obsolescence Scales Civic buildings, Temporary Buildings and External Sports Facilities
| Civics | Temporary Buildings | External Sports Facilities | |
|---|---|---|---|
| Age | Obsolescence | Obsolescence | Obsolescence |
| 2023 | 0.00% | 0.00% | 0.00% |
| 2022 | 0.75% | 1.50% | 0.50% |
| 2021 | 1.50% | 3.00% | 1.00% |
| 2020 | 2.50% | 4.50% | 1.50% |
| 2019 | 3.50% | 6.00% | 2.00% |
| 2018 | 4.75% | 7.50% | 2.50% |
| 2017 | 6.00% | 9.00% | 3.00% |
| 2016 | 7.25% | 10.50% | 3.50% |
| 2015 | 8.50% | 12.00% | 4.00% |
| 2014 | 10.00% | 13.50% | 4.50% |
| 2013 | 11.25% | 15.00% | 5.00% |
| 2012 | 12.75% | 16.50% | 6.00% |
| 2011 | 14.25% | 18.00% | 7.00% |
| 2010 | 15.75% | 19.50% | 8.00% |
| 2009 | 17.25% | 21.00% | 9.00% |
| 2008 | 18.75% | 22.50% | 10.00% |
| 2007 | 20.25% | 24.00% | 11.00% |
| 2006 | 21.75% | 25.50% | 12.00% |
| 2005 | 23.25% | 27.00% | 13.00% |
| 2004 | 24.50% | 28.50% | 14.00% |
| 2003 | 26.00% | 30.00% | 15.00% |
| 2002 | 27.50% | 31.50% | 16.00% |
| 2001 | 28.75% | 33.00% | 17.00% |
| 2000 | 30.00% | 34.50% | 18.00% |
| 1999 | 31.25% | 36.00% | 19.00% |
| 1998 | 32.50% | 37.50% | 20.00% |
| 1997 | 33.75% | 39.00% | 21.00% |
| 1996 | 35.00% | 40.50% | 22.00% |
| 1995 | 36.00% | 42.00% | 23.00% |
| 1994 | 37.00% | 43.50% | 24.00% |
| 1993 | 38.00% | 45.00% | 25.00% |
| 1992 | 39.00% | 46.50% | 25.00% |
| 1991 | 40.00% | 48.00% | 25.00% |
| 1990 | 40.75% | 49.50% | 25.00% |
| 1989 | 41.50% | 51.00% | 25.00% |
| 1988 | 42.25% | 52.50% | 25.00% |
| 1987 | 43.00% | 54.00% | 25.00% |
| 1986 | 43.75% | 55.50% | 25.00% |
| 1985 | 44.50% | 57.00% | 25.00% |
| 1984 | 45.00% | 58.50% | 25.00% |
| 1983 | 48.00% | 60% Max Allowance | 25% Max Allowance |
| 1982 | 51.00% | ||
| 1981 | 54.00% | ||
| 1980 | 56.75% | ||
| 1979 | 57.25% | ||
| 1978 | 57.50% | ||
| 1977 | 58.00% | ||
| 1976 | 58.25% | ||
| 1975 | 58.50% | ||
| 1974 | 58.50% | ||
| 1973 | 58.75% | ||
| 1972 | 59.00% | ||
| 1971 | 59.00% | ||
| 1970 | 59.25% | ||
| 1969 | 59.25% | ||
| 1968 | 60.00% | ||
| 1967 | 60.00% | ||
| 1966 | 60.00% | ||
| 1965 | 60.00% | ||
| 1964 | 60.00% | ||
| 1963 | 60.00% | ||
| 1962 | 60.00% | ||
| 1961 | 60.00% | ||
| 1960 | 60.00% | ||
| 1959 | 57.50% | ||
| 1958 | 55.00% | ||
| 1957 | 55.00% | ||
| 1956 | 55.00% | ||
| 1955 | 55.00% | ||
| 1954 | 55.00% | ||
| 1953 and earlier | 55% Max Allowance |
6.0 Industrial Buildings
6.1 As noted above, the scale of allowances commonly referred to as “the Monsanto scale” (derived from the approach determined in Monsanto v Farris (VO) 1998 RA 217) continue to be applicable to Industrial buildings.
6.2 The scales refer to the actual age of the specific item. A notional age can be adopted where the item has undergone significant improvement or refurbishment.
6.3 The scales do not provide for physical obsolescence alone. They also reflect the expected degree of functional and technical obsolescence for an asset of that age.
6.4 Any extraordinary functional or technical obsolescence may result in an additional allowance being considered. Examples include superfluity for modern purposes or where new technology evidences that the actual asset is relatively inefficient. Where an additional allowance is made the reasons for it must be stated in the valuation notes.
6.5 An element of risk of failure and the requirement of the tenant to replace the item at the end of its useful life is incorporated in the allowances.
6.6 It should not be automatically assumed that because a property is old it merits an allowance. Age in itself is not a disability but rather what often flows from age.
6.7 The scales are intended to provide a degree of uniformity of allowance. They should be regarded as the maximum allowances to be given (subject to 6.4 above).
6.8 The scales should only be used as guidance in accordance with the principles outlined in the Rating Manual.
6.9 The general allowance scales for civils/plant and tanks are intended to apply to large industrial hereditaments which possess a high number of similar items.
6.10 Allowances in excess of 50% for buildings or P and M should only be adopted in exceptional circumstances. It is unlikely that many very old buildings exist which have not undergone some form of modernisation or refurbishment. Where a building or piece of plant has obviously not undergone refurbishment or modernisation at some stage it is permissible to give allowances up to a maximum of 65% as indicated in the scales (below).
6.11 Allowances may be up to 50% higher from those shown in the scales for structures which are of a temporary nature and have continued in use well beyond their intended life span.
6.12 It should not be assumed automatically that because an item of plant or machinery is old it merits an allowance. If an asset is well maintained the amount of use may well not affect the item or its value. However, with age the risk of breakdown is likely to increase, and functional and technological obsolescence factors are likely to become prevalent. These factors must be borne in mind when selecting an appropriate obsolescence allowance.
6.13 The scales of allowances therefore take into account the average use of items over a period of time, bearing in mind the physical, functional and technical obsolescence that may occur during the stated period.
6.14 Where judgement through actual knowledge of the item is inconsistent with the allowance scales the item should be valued accordingly recording the reasons for the divergence from the scale.
6.15 In any instance of variation from the scales in accordance with these instructions, the reasoning for this must be recorded in the valuation.
7.0 Age related allowance scales (Industrials)
| PLANT | CIVILS | TANKS | BUILDINGS | |
|---|---|---|---|---|
| Age | Obsolescence | Obsolescence | Obsolescence | Obsolescence |
| 2023 | 0.00% | 0.00% | 0.00% | 0.00% |
| 2022 | 0.00% | 0.00% | 0.00% | 0.50% |
| 2021 | 0.00% | 0.00% | 0.00% | 1.00% |
| 2020 | 0.00% | 0.00% | 0.00% | 1.50% |
| 2019 | 0.00% | 0.00% | 0.00% | 2.00% |
| 2018 | 0.00% | 0.00% | 0.00% | 2.50% |
| 2017 | 0.00% | 0.00% | 0.00% | 3.00% |
| 2016 | 0.00% | 0.00% | 0.00% | 3.50% |
| 2015 | 0.00% | 0.00% | 0.00% | 4.00% |
| 2014 | 0.00% | 0.00% | 0.00% | 4.50% |
| 2013 | 0.00% | 0.00% | 0.00% | 5.00% |
| 2012 | 2.00% | 0.50% | 1.00% | 6.00% |
| 2011 | 4.00% | 1.00% | 2.00% | 7.00% |
| 2010 | 6.00% | 1.50% | 3.00% | 8.00% |
| 2009 | 8.00% | 2.00% | 4.00% | 9.00% |
| 2008 | 10.00% | 2.50% | 5.00% | 10.00% |
| 2007 | 12.00% | 3.00% | 6.50% | 11.00% |
| 2006 | 14.00% | 3.50% | 8.00% | 12.00% |
| 2005 | 16.00% | 4.00% | 9.50% | 13.00% |
| 2004 | 18.00% | 4.50% | 11.00% | 14.00% |
| 2003 | 20.00% | 5.00% | 12.50% | 15.00% |
| 2002 | 22.50% | 5.50% | 14.00% | 16.00% |
| 2001 | 25.00% | 6.00% | 15.50% | 17.00% |
| 2000 | 27.50% | 6.50% | 17.00% | 18.00% |
| 1999 | 30.00% | 7.00% | 18.50% | 19.00% |
| 1998 | 32.50% | 7.50% | 20.00% | 20.00% |
| 1997 | 35.00% | 8.00% | 21.00% | 21.00% |
| 1996 | 37.50% | 8.50% | 22.00% | 22.00% |
| 1995 | 40.00% | 9.00% | 23.00% | 23.00% |
| 1994 | 42.50% | 9.50% | 24.00% | 24.00% |
| 1993 | 45.00% | 10.00% | 25.00% | 25.00% |
| 1992 | 45.50% | 10.50% | 26.00% | 26.00% |
| 1991 | 46.00% | 11.00% | 27.00% | 27.00% |
| 1990 | 46.50% | 11.50% | 28.00% | 28.00% |
| 1989 | 47.00% | 12.00% | 29.00% | 29.00% |
| 1988 | 47.50% | 12.50% | 30.00% | 30.00% |
| 1987 | 48.00% | 13.00% | 31.50% | 31.00% |
| 1986 | 48.50% | 13.50% | 33.00% | 32.00% |
| 1985 | 49.00% | 14.00% | 34.50% | 33.00% |
| 1984 | 49.50% | 14.50% | 36.00% | 34.00% |
| 1983 | 50.00% | 15.00% | 37.50% | 35.00% |
| 1982 | 50.50% | 15.00% | 40.00% | 36.00% |
| 1981 | 51.00% | 15.00% | 40.00% | 37.00% |
| 1980 | 51.50% | 15.00% | 40.00% | 38.00% |
| 1979 | 52.00% | 15.00% | 40.00% | 39.00% |
| 1978 | 52.50% | 15.00% | 40.00% | 40.00% |
| 1977 | 53.00% | 15.00% | 40.00% | 41.00% |
| 1976 | 53.50% | 15.00% | 40.00% | 42.00% |
| 1975 | 54.00% | 15.00% | 40.00% | 43.00% |
| 1974 | 54.50% | 15.00% | 40.00% | 44.00% |
| 1973 | 55.00% | 15.00% | 40.00% | 45.00% |
| 1972 | 55.50% | 15.00% | 40.00% | 46.00% |
| 1971 | 56.00% | 15.00% | 40.00% | 47.00% |
| 1970 | 56.50% | 15.00% | 40.00% | 48.00% |
| 1969 | 57.00% | 15.00% | 40.00% | 49.00% |
| 1968 | 57.50% | 15.00% | 40.00% | 50.00% |
| 1967 | 58.00% | 15.00% | 40.00% | 51.00% |
| 1966 | 58.50% | 15.00% | 40.00% | 52.00% |
| 1965 | 59.00% | 15.00% | 40.00% | 53.00% |
| 1964 | 59.50% | 15.00% | 40.00% | 54.00% |
| 1963 | 60.00% | 15.00% | 40.00% | 55.00% |
| 1962 | 60.50% | 15.00% | 40.00% | 56.00% |
| 1961 | 61.00% | 15.00% | 40.00% | 57.00% |
| 1960 | 61.50% | 15.00% | 40.00% | 58.00% |
| 1959 | 62.00% | 15.00% | 40.00% | 59.00% |
| 1958 | 62.50% | 15.00% | 40.00% | 60.00% |
| 1957 | 63.00% | 15.00% | 40.00% | 61.00% |
| 1956 | 63.50% | 15.00% | 40.00% | 62.00% |
| 1955 | 64.00% | 15.00% | 40.00% | 63.00% |
| 1954 | 64.50% | 15.00% | 40.00% | 64.00% |
| 1953 | 65.00% | 15.00% | 40.00% | 65.00% |
| 1952 | 65.00% | 15.00% | 40.00% | 65.00% |
| 1951 | 65.00% | 15.00% | 40.00% | 65.00% |
| 1950 | 65.00% | 15.00% | 40.00% | 65.00% |
| 1949 | 65.00% | 15.00% | 40.00% | 65.00% |
| 1948 | 65.00% | 15.00% | 40.00% | 65.00% |
| 1947 | 65.00% | 15.00% | 40.00% | 65.00% |
| 1946 | 65.00% | 15.00% | 40.00% | 65.00% |
| 1945 | 65.00% | 15.00% | 40.00% | 65.00% |